Which sorts of inquiries actually hurt your credit score, if any? This might seem like an odd question, since we like to spend most of our time talking about innovative strategies in buying income properties. Still, we can’t ignore the reality that, without mortgages, there wouldn’t be many properties purchased. Not many of us can or should plop down cash to buy a piece of real estate. And it’s not a bad idea to shop around for the best interest rate before signing on the dotted line, but the question remains: Will multiple inquiries by prospective lenders lower your credit rating?

As with most things in life, we can answer with a solid, “Maybe.” Some do and some don’t. Here’s what you need to know on the topic. The primary distinction when it comes to inquiries is between hard and soft. A soft inquiry won’t harm your precious credit number one bit. The following falls into the category of a “soft” inquiry.

Self inquiry
Existing creditors
Potential employers
Businesses screening for solicitation

No matter how many of these types of credit snoops hit your record, don’t worry about the damage. It won’t hurt a bit. But pay heed to the other main category of inquiries, called “hard” inquiries. A credit check is considered a hard inquiry if it is generated by a new creditor you have given your social security number and authorization to check. It seems like this would tend to penalize a borrower looking for the best rate, doesn’t it? Yes, as a matter of fact it does. Credit rating companies want to be able to differentiate between distressed, high-risk borrowers looking desperately for funds anywhere they can find them, and legitimate borrowers doing their due diligence before taking out a loan.

Toward this end, Fair-Isaac, the developer of today’s credit scoring rules, has implemented what is known as the “ignore” rule. The ignore rule throws out mortgage, auto, and student loan inquiries made 30 days prior to scoring. This means that a recent flurry of legitimate activity on your part won’t end up penalizing you with a lower credit score.

This is a good rule but consumers should be warned that not ALL types of credit inquiries are ignored. A big one that is NOT ignored are multiple credit card requests. Your friendly neighborhood credit rating company is going to interpret these types of pings as signs of distress. Keep this in mind and don’t end up dinging your credit score through a barrage of credit card interest rate shopping.

Not exactly fair, but that’s the reality for now.

The AIPIS Team

(Flickr / Infusionsoft)