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.

Bookmark It

You hear it all the time on TV, read it on the web, free credit report this and free credit report that. Of course, free never really means free does it? No. They will give you your free credit report only after signing up for one of their monthly credit monitoring services, which are usually a waste of money anyway. Did you know that you can get a free copy of your credit report from the credit bureau?

It is true. The Fair Credit Reporting Act (FCRA) requires each of the three major credit bureaus, Experian, Equifax, and TransUnion, to provide you with a free credit report once every year upon request. The keyword here is request, they won’t send it to you unless you ask. Make it a point to order your copies every year around the same time. Check each one for accuracy and signs of illicit activity.

To order your yearly credit report online, visit the website annualcreditreport.com or you can call their toll-free hotline at 1-877-322-8228.

Identity theft is a tough crime to fight, partly because the victim frequently doesn’t even know they have been victimized by a credit thief until months or years down the road. By then, the thief is long gone, and who knows what kind of trail they will leave, if any.

In this day and age, you have to be proactive instead of reactive when it comes to identity and credit fraud. Thieves count on you being lazy and lax with your financial records, don’t give them the upper hand. Check your credit report regularly.

UPDATE 10/28/09: I personally went to annualcreditreport.com and got each one of my three credit reports for NOTHING. While you only get one every 12 months, it is still really convenient. I downloaded mine and printed it out instantly. You don’t have to join anything or sign up for any service. They do give you the option to purchase your FICO score for $7.95 but you don’t have to, if not then just press the “No Thanks, Just The Report” button. The reason you never hear of this site is because they don’t advertise it. Makes sense I guess, probably a cost thing, and a fraud thing. Before entering info into ANY site, look at the browser address box and make sure you are at the site that you think you are at.

Bookmark It

Learning how to properly use credit cards is often the difference between someone with good credit and someone with bad credit. Since credit cards are probably the most popular vehicle people use to drive themselves into the depths of credit despair, it is a great idea to set forth rules of engagement when it comes to your credit cards.

Rule one: Don’t purchase consumables with your credit card. Pay cash always.

This is a biggie, buying your morning coffee and bagel with your credit card ensures that you must use your card every single day. You then get into the habit of doing so. Not good. Pay cash like most people do when buying things you eat, drink, or smoke everyday. The credit card should only be used occasionally, any more than that and you wind up paying interest on what? A bagel. You would be the only one at work who pays $8.00 for a buttered bagel. Sounds stupid but it happens.

Rule two: If you don’t have the cash in your bank account to cover a purchase, YOU CAN’T AFFORD IT!

This is another big one. The only exception here is emergencies, and by emergencies I don’t mean that PlayStation 3 just released a collector’s edition of World of Warcraft that comes in a gold plated tin, and you just HAVE to charge it because you don’t get paid until next week. An emergency is having a flat tire on your only car, or the boiler goes kaput. If there weren’t credit cards, you wouldn’t be able to buy something if you didn’t have the money. That is the difference between society before and after consumer plastic. We were able to survive without credit cards for a long time. You should be able to do the same for non-emergency purchases. Don’t make it the norm to live on a borrowed dime, there is no faster way into the poor house.

Rule three: The minimum payment accomplishes NOTHING but putting more money into the pocket of the creditor.

Every time you make the minimum payment, the majority of your payment is likely to be pure interest. That means that only a small fraction of your payment actually goes towards lowering your principal balance. For example, if you make a $100.00 minimum payment on a high interest card, about $13.00 will be taken off your bill. The other $87.00 will be considered interest, or “The vig” in extortion terms. I say that because the majority of creditors are nothing more than mob loan sharks. Actually, worse, at least the mob is honest about what they will do to you if you don’t pay up. Pay as much as you possibly can every month, and if it truly is the minimum, than fine.

Rule four: If you can’t make your payment on time, call the creditor.

The absolute worst possible thing you can do is not pay and not call. This tells the creditor that you don’t take this debt seriously, and will likely wind up with them making a negative report to the credit agencies. That will directly affect your credit score in a  negative way. Call them, tell them you can’t pay right now and ask them for more time. You might get told absolutely not, but at least you made the effort to call them. This ways in your favor when they consider turning the account over to collections or not.

Those are a handful of guidelines that can greatly improve your credit card management. If you feel deep down that what you are doing is wrong, then it likely is. Treat your debts as a top priority and it will show, and the benefits will be many.

Bookmark It