In a bizarre twist, you need debt to build credit, but applying for debt causes inquires to build up, which hurt your credit. An inquiry appears on your credit report any time a company or individual pulls your credit report. If the pull is connected to a financial transaction, such as a credit card application, your credit scores suffer. Fortunately, inquiries don't appear immediately after you apply – giving you some leeway when you need extra credit in a financial pinch.
TL;DR (Too Long; Didn't Read)
Although reporting is immediate, it can take up to 30 days for a credit inquiry to actually show up on your credit report.
Basics of Credit Inquiries
The reason "hard" credit inquiries can count against you is that creditors don't want you applying for numerous credit cards and loans within a short time frame. This indicates you may be in financial hot water. Their thinking is if you're struggling financially, you're less likely to keep up with your debt, and this makes you a greater credit risk to lenders.
Time Frame for Reporting
A new inquiry is immediately reported to the credit reporting agencies. However, it can take as long as 30 days for the inquiry to be formally listed on your credit report. A couple of previous inquiries shouldn't make you panic. Lenders understand that periodic inquiries are a necessary part of a healthy financial background, and inquiries generally don't shave more than five points from your credit score.
An excellent credit score ranges from 740 to 850, so losing five points won't kill your credit rating. Repeated inquiries, however, can have more of a negative effect.
Impact of Rate Shopping
The game changes if you're shopping around for an interest rate and several lenders pull your report. Five points of credit damage can add up quickly, and the FICO scoring system takes that into account. That's why it counts all rate-shopping inquiries within a 30 to 45-day window as a single inquiry.
Each inquiry is dated. So, as long as it's within that window, you won't be penalized even if it doesn't show up on your credit report later than others.
Monitoring Credit Inquiries
Since credit inquiries show up on your credit report fairly quickly, they're an excellent early indicator of identity theft. If you're like most people, the last thing you need is someone running around building up debt in your name. Federal law allows you to check all three of your credit reports once a year completely free. By pulling one credit report every four months, you can identify questionable credit inquiries and quash any potential cases of identity theft before they become an unmanageable nightmare.
Ciele Edwards holds a Bachelor of Arts in English and has been a consumer advocate and credit specialist for more than 10 years. She currently works in the real-estate industry as a consumer credit and debt specialist. Edwards has experience working with collections, liens, judgments, bankruptcies, loans and credit law.