The Fair Credit Reporting Act (FCRA) specifies who can see your credit report. Businesses must have a “permissible purpose,” as defined in the FCRA, to obtain your credit report. Otherwise, only you and those you give written permission to can access your credit report.
Section 604 of the FCRA (Permissible Purposes) sets forth the purposes that permit a business or other person to gain access to your credit report. Credit Bureaus can report only to a person who has a permissible purpose to receive that credit report. The permissible purposes include:
- A court order or Federal grand jury subpoena
- In accordance with written instructions from a consumer to whom the file relates
- As part of a credit transaction involving the consume
- To review and collect the consumer’s account
- For employment purposes (only with the consumer’s written consent)
- Underwriting of insurance for personal, family or household purposes
- Government agencies for determination of consumer’s eligibility for a license or other governmental benefit such as a security clearance or gun license
- In connection with a valuation of, or an assessment of the credit or prepayment risks associated with, an existing credit obligation
- In connection with a legitimate business need relating to a business transaction initiated by the consumer
- To review an account to determine whether the consumer continues to meet the terms of the account
Credit inquiries fall into one of two categories “hard inquiries” or “soft inquiries”. Only hard inquiries have an effect on your credit score.
Soft inquiries are all credit inquiries in which your credit is NOT being reviewed by a prospective lender. These include inquiries by you checking your own credit, credit checks made by businesses to offer you goods or services (such as promotional offers by credit card companies), or inquiries made by businesses with whom you already have a credit account.
Hard inquiries are inquiries by a potential lender who is reviewing your credit because you’ve applied for credit with them. These include credit checks when you’ve applied for an auto loan, mortgage or credit card. Each of these types of credit checks count as a single inquiry.
When you are ready to make a major purchase using credit, the creditor may rate shop or “shotgun” your credit application to numerous financial institutions to get the best deal – or to even get approved. These inquiries may be considered by the credit bureaus as one inquiry for calculation of your credit score if they fall within a certain time period. This time period can vary from 15 to 45 days depending on the bureau or reporting agency. The individual inquiries will still show up on your credit report.
Inquiries may or may not affect your score. Again, it depends on the bureau or reporting agency. If you initiate the request, (looking to make a purchase with credit) then these will most likely affect your score.
Inquiries are all specifically coded by the credit bureaus to reflect the industry from which they came. That means if you apply for a mortgage, auto loan, credit card, personal loan, student loan, or any other type of loan the inquiry will likely clearly indicate the specific type of credit you’ve applied for. This is important because the type of inquiry plays a key role in how it’s evaluated.
Mortgage, auto and student loan inquiries are treated differently from all other inquiry types. These are the types of loan where you can shop around for the best interest rates and terms. As such, searching for any one of these loans can result in many lenders pulling your credit reports and scores. As such, your credit reports end up with multiple credit inquiries in a very short period of time because of your rate shopping activities.