A credit inquiry is a formal request for information on a consumer's credit from an organization like a bank or employer. If the request is associated with a credit application, as when a mortgage lender makes a credit inquiry as part of a loan application, it will go on the consumer's credit report and can cause her score to drop slightly. This is known as a hard inquiry, in contrast with a soft inquiry like a consumer's request for his own credit score or an employer's credit inquiry as part of a background check. Soft inquiries do not count against a consumer's credit score.
Statistically, large numbers of credit inquiries can represent a risk, as they suggest that a consumer is applying for multiple credit accounts. The more lines of credit a consumer has open, the greater the risk of default. Predictive scoring systems consider credit inquiries in the process of evaluating credit risk and may drop the score for a consumer with multiple applications for credit cards and other forms of credit out.
Credit bureaus do consider rate shopping when deciding how to weigh a credit inquiry in a consumer's score. Many consumers apply for multiple car or home loans to get the best possible rate. If each inquiry counted against the consumer, her score would drop radically and her loan offers would be adversely impacted. The credit bureau's scoring system will consider inquiries of a similar nature together, and they will not impact the score for 30 to 45 days, to allow the consumer enough time to accept a loan offer.
Credit inquiries are only supposed to appear on a credit report when the consumer specifically requested credit and signed paperwork to give consent for a credit inquiry. In some cases, however, an unauthorized inquiry shows up on the credit report and may negatively impact the consumer's credit. It is possible to issue a removal letter to the creditor, asking to have the inquiry withdrawn so it will not appear on the credit report.
In a removal letter, the consumer should outline the situation, indicate that the credit inquiry was not authorized, and provide information about which credit agencies are currently showing the inquiry. It is advisable to keep a copy of the letter and to follow up to make sure the inquiry is actually gone. If excessive inquiries are cited as a reason to deny credit or offer an unfavorable rate, the consumer can show the letter to explain what is going on and request a reevaluation.