FICO® Scores and inquiries—the facts

There always seems to be a lot of interest in how the FICO® Score is impacted when a consumer applies for credit.  In truth, these credit inquiries account for a relatively small percent of the score (less than 10%, in fact). Because of ongoing interest, let’s walk through some interesting facts about inquiries:

• 49% of consumers have no inquiries, 24% have 1 inquiry, and 27% have 2 or more inquiries.
• 57% of consumers score the maximum number of points for inquiries; that is, inquiries are not a factor for at least 57% of consumers.
• If an inquiry does impact a score, it’s typically by a small amount—less than five points, on average.
• 89% of the time, inquiries are not even one of the top four greatest factors impacting the score. 
• Only 0.4% of the time, inquiries are the score factor with the greatest impact.
• Only 14% of consumers lose more than 10 points because of inquiries.  Only 4% of consumers lose more than 20 points because of inquiries.

So yes, inquiries can impact a FICO® Score, but not by all that much, in the grand scheme of things.

Comments

[Nabil Captan]

When you say that only 14% of consumers lose more than 10 points because of inquiries, and only 4% of consumers lose more than 20 points because of inquiries. Am I right to say that among the factors that are highly considered:
• Average age of the accounts
• Number of inquiries within specific period
• Utilization ratio on revolving accounts
• Number of negative derogatory items on consumer’s credit file

[Frederic Huynh]

Hi Nabil: The best way to understand the most important factors in the FICO Score is to focus on the five categories of credit (http://www.myfico.com/CreditEducation/CreditInquiries.aspx). Payment history and amounts owed are the two most important categories accounting for approximately 35% and 30% of the score, respectively. Within each of these categories, there are multiple factors that further assess that particular dimension. For example, with the payment history category, there are predictive variables that assess the recency, severity, and frequency of delinquent information. The bottom line is that I would not characterize inquiries as being a very important score factor relative to other predictors. Hope that helps.

[Colin]

Is this true?

"Applying for a new credit card doesn’t mean all three of your credit reports are being accessed. Only one is going to be pulled so the new inquiry will only appear on that particular credit report. That means your FICO scores at the other two credit bureaus are not impacted at all."

Even if only ONE is utilized for the underwriting decision, don't the other two eventually find out about the inquiry anyways and count it against you?

[Frederic Huynh]

An inquiry is posted any time a creditor pulls a consumer’s credit report in response to a request for credit. Many credit card issuers only use one bureau in their originations strategies, so in those instances applying for a new credit card will result in one additional inquiry being posted that could impact the FICO Score at that bureau. However, if a card issuer uses multiple bureaus in their decisioning, then it is possible for more than one credit bureau report to be impacted.

To answer your second question, even if only one credit bureau is used in the underwriting decision, the other two bureaus will NOT find out about that inquiry, and that inquiry will not impact your FICO Score at the other two bureaus. Inquiries can only be posted if a consumer’s credit profile was accessed at that particular bureau.

[Colin]

Thanks for clarifying!

[German]

What is best for FICO purposes: To have $5000 dollars of credit limit or to have two secured cards with $2500.00 each?

[Frederic Huynh]

Hi German, thanks for your comment. There’s no real easy way for me to answer your question as there are so many other variables that could influence the FICO Score. In evaluating the indebtedness dimension, multiple characteristics are used. Some characteristics look at credit card utilization in general, other characteristics can focus on the credit card utilization levels on one specific account, and others can focus on outstanding credit card balances. In general, the best advice I can provide is to keep balances on as many accounts low and to only apply for credit that is truly needed.

[Mike]

You say ONLY 14% of consumers lose more than 10 points because of inquiries, however, that is nearly 1 in 7, which I think is a high number.

Since a 1 point difference in a credit score could end up costing thousands of dollars over the term of a loan I think you are grossly understating the impact of what inquiries could actually do to someone's bottom line.

[Frederic]

Mike, the main point of my post was that, in the grand scheme of things, inquiries are not a primary driver for credit risk. In general, if someone's score is on the cusp of a lender's score cutoff as you suggest, other factors more significant than inquiries have put it there. Those other factors are much more worthy of the borrower's attention. Bottom line, credit inquiries have consistently proven to be relevant to predicting credit risk and that is why they remain part of the FICO Score equation. For a majority of consumers, inquiries are not even a factor in their score.

[Mike]

I don't get it. You specifically stated "14% of consumers lose more than 10 points because of inquiries" then you turn around and make it sound like the point drop is because of something else.

So the questions I have are do up to 14% of consumers have their credit scores drop by 10 points or more SOLEY based on having too many inquiries? If yes, how many inquiries and in what time frame could it take to drop the 10 points or so? Again, I think this is important to know.

[Frederic Huynh]

Mike, when I say that approximately 14% of consumers lose more than 10 points because of inquiries, that statistic is based solely on the impact of inquiries. The FICO® Score looks at inquiries made within the last year. It’s impossible to answer the question “how many inquiries” because that number can vary by credit profile.