Managing Your Credit Score
ALEX CHADWICK, host:
When you go shopping for a car or a home, do you get worried if you hear the words, `Can I pull your credit report?' Creditwise people know that too many inquiries like this can lower credit scores, affecting what you pay for credit. DAY TO DAY personal finance contributor Michelle Singletary talked this over with my colleague Madeleine Brand.
MADELEINE BRAND reporting:
So what exactly is a credit inquiry?
MICHELLE SINGLETARY (Personal Finance Contributor): Oh, this is when a creditor pulls your credit report to check your history. So when you go shopping for a car--you know that line, `Well, let me look at your credit report,' so they can see what your history is in paying your bills, so they can determine how much they're going to charge you for that car loan.
BRAND: So--but do you have a choice? You have to say yes, right?
SINGLETARY: You don't have to say yes, but you may not get the loan.
(Soundbite of laughter)
SINGLETARY: So you are put in a position to say yes. But if you're just shopping around and you're looking for car prices, do not let them pull your credit report until you're ready to buy and negotiate because over a certain period of time that can have an effect on your credit score. So you don't want people it--just willy-nilly pulling your report if you're just looking and you're not ready to sit down and negotiate a price for the car and for the loan that you're going to get for that car.
BRAND: Well, how do these inquiries affect your credit score?
SINGLETARY: Well, according to Fair Isaac, which is the company that created sort of the baseline model for credit scoring, it's called a hard credit inquiry. And that means that you're applying for some form of credit, prompting the creditor to check your credit report. And that's counted against you, in some cases about 5 points, on your credit score but sometimes no points. But it could be at least 5 points every time they pull that credit report.
BRAND: So what about if you preapproved--you get these offers in the mail all the time saying, `You are preapproved'--does that count?
SINGLETARY: No, it does not. It does not count when they do preapproved. It also doesn't count when you pull your own credit report. And, also, I just need to note there's a 14-day window when there's multiple credit reports being pulled on you. So say you're shopping for a home loan and you want to get the best rates, so you're going from, you know, a couple of lenders. Within a 14-day window, if they pull your credit report, it's not dinged, and, in fact, that window is actually being stretched. There's a new model that Fair Isaac put in place that lengthens that period to 45 days.
BRAND: And what happens if you're out looking for a job and employers pull your credit report?
SINGLETARY: That does not count against you. So if you pull it, if it's preapproval that's sent to you, that doesn't affect it. And if you're shopping for a job or someone--you're looking for a job and they're pulling your credit report, that does not affect your credit score.
BRAND: So, Michelle, who should really be concerned about the effect these inquiries could have their FICA scores?
SINGLETARY: If you're taking an extraordinarily long time to look for a car loan or a home loan, they can pull your credit report. So if you're operating out of that 14-day or 45-day window, it can affect your score. And if you've been shopping around for a lot of credit because you need the credit and it's taken a while for those to be approved, that can pull down your credit score. But if you're shopping in a short period of time--say, you take a weekend to look for a car loan--you probably don't need to be concerned about them pulling your credit report. But you do want to be very careful about the number of people--that is, creditors--that you allow to pull your credit report 'cause it can pull your score down. And, ultimately, that could mean that you have a higher interest rate on that credit that you're seeking.
BRAND: Michelle Singletary is DAY TO DAY's regular contributor on personal finance. She also writes The Color of Money column for The Washington Post.
Thanks a lot, Michelle.
SINGLETARY: You're welcome.
CHADWICK: And that interview by DAY TO DAY's Madeleine Brand.
If you have personal finance questions for Michelle, just go to the contact page at npr.org, and be sure to include `Michelle' in the subject line.
DAY TO DAY is a production of NPR News with contributions from slate.com. I'm Alex Chadwick.