Credit Inquiries

Credit Inquiries

Your FICO insurance score is not affected by your own credit report checks.

To learn about credit inquiries and how they may or may not affect your FICO® Credit-Based Insurance Score, choose a topic below or scroll down the page.

  1. What is a credit inquiry?
  2. Which inquiries affect my insurance score?
  3. Does checking my credit affect my score?
  4. How are inquiries factored into FICO insurance scores?
  5. Do inquiries always affect my score?
  6. What happens when I apply for credit?
  7. Will my FICO insurance score drop if I apply for new credit?
  8. What should I know about "rate shopping?"
  9. How can I improve my insurance score?

What is a credit inquiry?

A credit inquiry is an item on a credit report that shows that a business with a "permissible purpose" (as defined under the federal Fair Credit Reporting Act) has previously requested a copy of the report.

Which inquiries affect my insurance score?

When you check your credit report, you may notice that a number of credit inquiries are listed, sometimes naming businesses that you don't know. But the only inquiries that count toward your FICO insurance score are the ones that result from your own requests or applications for new credit.

  • Inquiries that count toward your FICO insurance score.
    Only one type of credit inquiry counts toward your insurance score. When you apply for a mortgage, auto loan or other credit, you authorize the lender to request a copy of your credit report. These types of inquiries, prompted by your own actions, appear on your credit report and in most states are factored into your FICO insurance score. This type of inquiry helps predict whether you're more or less likely to have claims in the near future that will result in losses for the insurance company.
  • Inquiries that don't count toward your FICO insurance score.
    Your own credit report requests do not count toward your FICO insurance score. Neither do credit checks made by businesses to offer you goods or services, credit checks made by insurance companies, nor inquiries made by businesses with whom you already have a credit account. Credit checks by prospective employers also do not count. These types of inquiries may appear on your credit report, but they are not included in your FICO insurance score.

Does checking my credit affect my score?

Your FICO insurance score is not affected when you check your own credit report.

Checking your credit reports regularly to be sure they are complete and error-free is a good idea. In fact, maintaining accurate credit reports is a part of good credit management, which can help to improve your insurance scores over time.

You can order your credit reports from TransUnion or Equifax (with FICO® credit risk scores) at www.myfico.com. You can also order your credit reports from the three major credit reporting agencies annually, and for free, by accessing www.annualcreditreport.com.

How are inquiries factored into FICO Insurance scores?

There are five general categories of credit information that have proven predictive of future insurance loss experience and are used to calculate a FICO insurance score. Each information category counts as a percentage of a total insurance score:

Payment History = 40%
Amounts Owed = 30%
Length of Credit History = 15%
New Credit = 10%
Types of Credit Used = 5%

These percentages are based on the importance of the five categories for the general population. For particular groups, such as people with relatively short credit histories, the importance of the categories may differ.

Inquiries are included in the "new credit" category shown above, which accounts for about 10% of the total FICO insurance score. Their importance depends on the overall information in your credit report. A given factor may be more important for some people than it is for others who have a different credit history. In addition, as the information in your credit report changes, so does the importance of any factor in determining your score. What's important is the mix of information, which varies from person to person, and which changes for any one person over time.

Do inquiries always affect my score?

A FICO insurance score takes into account only those inquiries that result from your request or application for credit within the past 12 months. The information about inquiries that can be factored into your FICO insurance score includes:

  • Number of recently opened accounts, and proportion of accounts that are recently opened, by type of account
  • Number of recent credit-seeking inquiries
  • Time since recent account opening(s), by type of account

A FICO insurance score does not take into account any inquiries made by businesses with which you did not apply for credit, inquiries from employers, inquiries from insurers, or your own requests to see your credit report.

For many people, one credit-seeking inquiry may not affect their FICO insurance score at all. For others, one credit-seeking inquiry could take less than 5 points off their score.

Inquiries can have a greater impact, however, if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk. For example, people with six inquiries or more on their credit reports have loss ratios—the amount paid by the insurance company in claims divided by the amount the insurer collected in premiums—more than twice as large as the loss ratios of people with no inquiries on their reports.

What happens when I apply for credit?

When you apply for credit, you authorize the lender to ask for a copy of your credit report. Your credit report will then note when the lender makes that request to the credit reporting agency. In fact, the inquiries section of your credit report contains a list of everyone who accessed your credit report within the last two years although FICO insurance scores only consider credit-seeking inquiries that have occurred during the past year.

When you look at your report you may see two lists of inquiries. One contains voluntary or "hard" inquiries, spurred by your own requests for credit, and the other contains all other or "soft" inquiries, such as when lenders order your credit report before offering you a pre-approved credit card.

Will my FICO insurance score drop if I apply for new credit?

Looking for new credit can equate with higher insurance risk. If your score does drop, it probably won't drop much. If you apply for several credit cards within a short period of time, multiple inquiries will likely appear on your report and affect your score. The picture is different when you shop for an auto loan or a mortgage. FICO insurance scores are not affected by multiple inquiries within a short period of time from auto lenders or mortgage lenders. Typically, these are treated as a single inquiry and will have little impact on the score.

What should I know about "rate shopping?"

Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though you're only looking for one loan. To compensate for this, FICO insurance scores count multiple inquiries from such lenders in any 30-day period as just one inquiry. In addition, the score ignores all such inquiries made in the 30 days prior to scoring.

How can I improve my insurance score?

If you need a loan, do your rate shopping within a focused period of time, such as 30 days. FICO insurance scores distinguish between a search for a single auto or mortgage loan and a search for many new credit lines, in part by the length of time over which inquiries occur.

Generally, people with high FICO insurance scores consistently:

  • Pay bills on time
  • Keep balances low on credit cards and other revolving credit products
  • Apply for and open new credit accounts only as needed

Also, here are some effective credit management practices that can help to raise your FICO insurance score over time:

  • Re-establish your credit history if you have had prior problems. Opening new accounts judiciously and paying them on time will raise your FICO insurance score over the long term.
  • Check your own credit reports regularly, and before applying for new credit, to be sure they are accurate and up-to-date. As long as you order your credit reports directly from the credit reporting agencies (via www.annualcreditreport.com), or through an organization authorized to provide credit reports to consumers, such as myFICO®, your own inquiries will not affect your FICO insurance score.