A credit inquiry is when a third party, such as a mortgage company or a credit card company, requests a copy of your credit report and/or credit score from any of the three credit bureaus. In fact, they are “inquiring” about your credit worthiness.

Do these inquiries negatively affect your credit report/score? That depends. An occasional inquiry for things like a car, house, or education will not be held against you when determining credit risk.  The ones that can negatively affect you are the inquiries for new credit cards or lines of credit. These typically deduct 5 points from your credit score for each inquiry of this type. The ones listed will usually be only recent ones, within a year or so.

Now, if you have several credit card inquiries in a short amount of time, then that will definitely lower your credit score. Multiple clustered inquiries for credit cards put you in a high risk category for the lender. They will wonder why you are scrambling to get a bunch of spending credit in a short amount of time, and will make their decision accordingly. Other credit inquiries that get clustered, such as an automobile loan, are not held against you. To them it just looks like you are shopping around for the best deal on a car you can get, and every place you go they have to run your credit score/report.

Other companies can request a copy of your credit report without you even knowing, unless you have a security freeze on the account. Usually, debt collection agencies will check your credit report periodically so they can stay up to date on all of your past debts and new ones, as well as any updated personal information. They are not required, by law, to inform you that they will be checking your credit.

If you have multiple inquiries on your credit report, you should write to the credit bureau and request that they be removed because you never gave permission to any of the people listed. You will almost always get some of them removed, and the rest will remain, but it is worth the effort. Building and/or fixing your credit is like saving pennies. Each penny by itself is not worth much, but as time passes, the pennies will eventually add up to a large amount of money. Every small step you take will only add to your overall score.

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FICO, an acronym for the Fair Isaac Corporation, is a score that lenders use to determine the quality of your credit rating. It is popular because instead of a lender having to thumb through all of your credit history and read all of your past debts, they can just run your name and see if your score meets their standard. If not, no credit. If so, it is “How can I help you, good sir?” You can purchase your true FICO score (not the FAKO score, see below) from www.myfico.com.

The How

So, in reality, the FICO score is really a formula. It combines, multiplies, divides, and subtracts different variables and ultimately spits out your FICO score. This means that the formula must have a set of data to supply a result. Now this is what people fail to appreciate, your FICO score is only as reliable and accurate as the set of data it uses to calculate the score. This set of data is your credit file. This is why it is important to make sure everything in your file is accurate, even small details like address and past address. If your name is spelled incorrectly then that could seriously affect your FICO score, and that would be very inconvenient, especially if you are in the middle of buying a car or a house. Embarrassing also. Make sure your credit report has accurate personal information, it is worth your time to check.

The FICO score pulls different sets of information from this file to use in its calculation.

What information does the FICO score use exactly?

It is broken down into percentages, each class of information has a certain level of impact on the raising or lowering of your FICO score, like so:

• 35% Payment History
• 30% Money Owed
• 15% Amount of Overall Credit
• 10% New Credit
• 10% Type of Credit

Payment History

Guess what this is about? Yup, your payment history. This is where paying your car bill late every month will come back to haunt you. Promptness counts, and the FICO score is living proof.

Money Owed

Another tough one, this one is based on your total amount of outstanding balances on all loans and credit cards.

Amount of Overall Credit

Adds up all the credit you have, this includes credit cards and credit lines. If you don’t need a lot of credit, then tell the lender to lower the maximum credit limit, or else it can be used in a negative way on your FICO score.

New Credit & Type of Credit

This is credit you just received within the last 30 days or so. They want to know if you are all of a sudden going all over town requesting credit. Behavior like that can indicate a high risk loan, which the lender may shy away from. The type of credit you have is used also. There is a big difference between a $10,000 credit line for a mail-order enema company and a $10,000 credit limit on an American Express Gold Card. One has a much higher chance of being used, I hope you know which one

A good FICO score is 619 and up, it goes up to 850. Between 575 and 619 is where you will get the worst interest rates and terms of anybody anywhere. They know your credit is not good, but not bad enough to deny you, yet good enough for them to charge you whatever they want. Anything below 500 and you are in the credit crapper. You will have a lot of friends there, don’t worry. Most of the country’s middle class are there with you.

FAKO and FICO

Fair Isaac is the creator of the FICO score, however, the three credit bureaus have developed their own method of determining your FICO score, called the VantageScore model, or also called the FAKO score by credit professionals. This has created a line drawn in the sand that you as a consumer probably had no idea existed. The thing is, most lenders will only use the true FICO score from Fair Isaac, and not the FAKO. So if you do some research before buying a house and want to know what your FICO score is, you may very well unknowingly buy a FAKO score and then find out your true FICO score is less than you thought. Use the FICO scores from myfico.com to be sure you are getting the right one. NOT the ones at the credit bureau’s sites.

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You credit report is a digital file that holds complete records of any type of debt you have. It records things like missed car payments, repossessions, credit card outstanding balances, court-ordered judgments, mortgage defaults, debt collection agency accounts, and other types of debt. Anyone with a United States issued social security number has a credit report on file with the three major credit bureaus. The credit bureaus, (Experian, Trans Union, and Equifax) are the keepers of this file. Anytime you borrow money and do not pay it back on time, or not at all, the company that you borrowed it from contacts the 3 credit bureaus and files the outstanding account in your credit report.

Items can stay on your credit report for up to 10 years, and even then, some of them remain. Lenders will go out of their way to make sure the debt you incur to them is reported to the credit bureaus, and that is because they rely a great deal on the integrity of the credit report. Anytime you want to borrow money, a lender will run your name and retrieve your credit score, this credit score is a numerical interpretation of your entire credit report, it is a rating. Depending on what type of loan you need, your credit score needs to be at least 500.

The lenders do not take your word for it that you are going to pay them back and on time. They use your credit score to make that decision, and the logic is rational. If you have a low credit score, it means you have had problems paying your bills, regardless of the reason. This is all a lender needs to know in order to decline you for a loan. As you might imagine, bad credit rating can keep you from getting many things in life. Cars, houses, school loans, credit cards, and even car rentals all require a good credit rating to acquire.

Thankfully, there are ways to improve your credit, but it does not happen overnight. Anyone who tells you that it does is trying to sell you something, and it is a pack of lies. It takes years to get debts removed from your credit report, even when you pay them off! Of course, the best thing to do is pay your bills and never default on any loan, ever. Many people have bad credit, and a lot of them ruined it when they were young. Credit card companies love to give young people credit cards, because they have a tendency to run the balance up all the way to the max. Then when they run the card up to the limit, they have no choice but to make payments on the balance since they do not have the principal. Most of these payments cover interest and barely any of the principal. The credit card companies do this on purpose, and ruin young people’s financial security before they even get out of college.

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