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Why are too many credit report inquiries negative for your credit score?


There are two kinds of inquiries that credit reporting agencies keep track of. One results from someone checking your credit history for whatever reason, and the other occurs when you seek credit, such as by applying for a loan or credit card. Only the second kind can adversely affect your credit score. The reason is that seeking credit too often suggests that you may be having trouble making ends meet with your existing resources or that you may be planning purchases that eventually will put your finances in that same precarious state.
The impact of an inquiry tends to be quite small, reporting agencies say. It can take as little as five points off a credit score, which has a range from 300 to 850. The erosion can be greater, however, for borrowers who have few accounts in their name or a short credit history. Another distinction that reporting agencies make is between multiple applications for loans, which could indicate a smart consumer shopping for the best rate, and multiple applications for credit cards, which could be a prelude to excessive borrowing.
-Conrad de Aenlle