What is a FICO® Score?

A FICO Score is a three-digit number based on the information in your credit reports. It helps lenders determine how likely you are to repay a loan. This, in turn, affects how much you can borrow, how many months you have to repay, and how much it will cost (the interest rate).

When you apply for credit, lenders need a fast and consistent way to decide whether or not to loan you money. In most cases, they'll look at your FICO Scores.

You can think of a FICO Score as a summary of your credit report. It measures how long you've had credit, how much credit you have, how much of your available credit is being used and if you've paid on time.

Not only does a FICO Score help lenders make smarter, quicker decisions about who they loan money to, it also helps people like you get fair and fast access to credit when you need it. Because FICO Scores are calculated based on your credit information, you have the ability to influence your score by paying bills on time, not carrying too much debt and making smart credit choices.

Thirty years ago, the Fair Isaac Corporation (FICO) debuted FICO Scores to provide an industry-standard for scoring creditworthiness that was fair to both lenders and consumers. Before the first FICO Score, there were many different scores, all with different ways of being calculated (some even including gender and political affiliation).

Why are FICO Scores important?

FICO Scores help millions of people like you gain access to the credit they need to do things like get an education, buy a first home, or cover medical expenses. Even some insurance and utility companies will check FICO Scores when setting up the terms of the service. The fact is, a good FICO Score can save you thousands of dollars in interest and fees as lenders are more likely to extend lower rates if you present less of a risk for them. And overall, fair, quick, consistent and predictive scores help keep the cost of credit lower for the entire population as a whole. The more accessible credit is, the more lenders can loan and the more efficient they can be in their processes to drive costs down and pass savings on to the borrowers.

What is the difference between a FICO Score and other credit scores?

Only FICO Scores are created by the Fair Isaac Corporation and are used by over 90% of top lenders when making lending decisions.

Why? Because FICO Scores are the industry standard for making accurate and fair decisions about creditworthiness. They help millions of people get the credit they need for a home, a new car, or a special purchase.

You may have seen ads for other credit scores, or likely even purchased them in the past. These other credit scores calculate your scores differently than FICO Scores. So while the other credit scores may seem similar to the FICO Score, they aren't. Only FICO Scores are used by 90% of the top lenders.

What is a good FICO Score?

Every lender determines for themselves what is a good FICO Score and how they will use a FICO Score and other information within the loan approval process.

In general, many lenders find scores above 670 as indicating good creditworthiness. Typically, the higher your score, the lower the risk and the more likely creditors are to lend to you.

There are general score ranges recognized by creditors to help them make lending decisions. These ranges can also serve as goals for you to achieve.

The information in your credit reports is continually changing, which means your FICO® Score is also updating frequently.

What does my FICO Score mean?

FICO	Rating	Description
<580	Poor	Your score is well below the average score of U.S. consumers and demonstrates to lenders that you are a risky borrower.
580-669	Fair	Your score is below the average score of U.S. consumers, though many lenders will approve loans with this score.
670-739	Good	Your score is near or slightly above the average of U.S. consumers and most lenders consider this a good score.
740-799	Very Good	Your score is above the average of U.S. consumers and demonstrates to lenders that you are a very dependable borrower.
800+	Exceptional	Your score is well above the average score of U.S. consumers and clearly demonstrates to lenders that you are an exceptional borrower.

Why are there different FICO Scores?

1. To better meet the demands of today's credit usage. We use credit a lot differently than we did 30 years ago. FICO Scores have periodically been updated to stay more current.
2. To meet the needs of different types of lenders. Auto lenders and credit card issuers look at some things differently to determine your creditworthiness. FICO created industry-specific scores to help these lenders make better decisions and serve their customers better.

How do revolving accounts impact my FICO Score?

How someone manages their revolving debt is an important factor considered in the calculation of FICO® Scores. With revolving credit, like a credit card, the lender will set a credit limit. The credit limit is the maximum amount you can charge to that account. When you make a purchase, you'll have less available credit by the amount of that purchase. Similarity, when you make a payment, your available credit generally goes back up by the amount of that payment. Revolving credit accounts are open ended, meaning they don't have a certain end date. As long as the account remains open and in good standing, you can continue to use it.

FICO® Scores consider revolving account information reported on your credit bureau report in a number of ways:

• How long the revolving account has been opened.
• The balance on the revolving account.
• The payment history on the revolving account (are there any late payments for example).
• How much of your available revolving credit limit is being used (also referenced as revolving utilization percentage). For example:
  • $1,000 balance
  • $4,000 credit limit
  • 25% utilization percentage

When developing the FICO® Scores our analysis consistently shows that the higher the revolving utilization percentage for a consumer, the greater the risk of that consumer not paying credit obligations as agreed. As such, people should try to keep their revolving credit utilization as low as possible.

Interestingly, the analysis also shows that having no revolving balances being reported (and thus having 0% revolving utilization), is slightly more risky than having a small balance/low revolving utilization reported. So, if you have low revolving utilization in your credit report this month and that gets updated to reporting $0 revolving balances (0% revolving utilization), you might see your score drop holding all else constant.

What's the difference between a charge card and a credit card?

Credit card

In general, a credit card lets you make purchases for which you are billed later. Most credit card accounts allow you to carry a balance from one billing cycle to the next. However, you will usually have to pay interest on that balance. You likely also have to pay at least a certain amount of your balance each time you receive a bill.

Charge card

A charge card is a specific kind of credit card. The balance on a charge card account is payable in full when the statement is received and cannot be rolled over from one billing cycle to the next. American Express and Diner's Club are two well-known organizations that offer charge cards.

So what does this mean for your FICO® score? There are many ways to build one's FICO score over time. Credit cards in general have a strong influence on the FICO score calculation. Charge cards can be just as effective as any other credit product in helping consumers establish a credit history.

Whether you have a credit card or a charge card, the most important factor in building or improving your FICO score is using credit responsibly. That means paying your bills on time and using your credit only when needed. If you can do those things consistently, you should be well on your way toward maintaining a good score.

Will closing a credit card account help my FICO Score?

This may sound a bit counter-intuitive; after all, cleaning up your credit profile by getting rid of old or unused credit cards sounds like a good idea - and it may be from an overall credit management perspective. If you are tempted to charge more than you should just because you have more availability to credit, then getting rid of that temptation by closing some credit cards might be your best course of action.

However, your FICO Score takes into consideration something called a Credit Utilization Ratio. This ratio looks at your total used credit in relation to your total available credit; the higher this ratio is, the more it can negatively affect your score. So, by closing an old or unused card, you are essentially wiping away some of your available credit and there by increasing your credit utilization ratio.

It's a bit tricky, so here's an example:

Say you have 3 credit cards. Credit card A has a $500 balance and a $2000 credit limit. Credit card B is an unused card with a zero balance and a $3000 limit. Credit card C has a $1,500 balance and a $1,500 limit:

Card	Balance	Limit
A	500	2000
B	0	3000
C	1500	1500

In this scenario your Credit Utilization Ratio looks like this:

Card	Balance	Limit
A	500	2000
B	0	3000
C	1500	1500
Total	2000	6500

Credit Utilization Ratio: 30% = 2000/6500

Now, if you decide to close credit card B because it's an old card that you never use, this is how your credit utilization ratio would look like:

Card	Balance	Limit
A	500	2000
C	1500	1500
Total	2000	3500

Credit Utilization Ratio: 57% = 2000/3500

See that your Credit Utilization Ratio rose from 30% to 57% by closing the unused credit card?

Some reasons you might have for closing an account:

1. Are you applying for credit and is the loan officer instructing you to take this action in order to pass the lender's criteria? Then, it may make sense to take this action.
2. Are you taking this action as a means to "self-regulate" temptations you may have to use that card in the future? If so, it may make sense to take this action.
3. Are you trying to get negative items on that credit card from being counted? That won't work because FICO Scores still consider payment history and balances on accounts with a closed status.
4. Are you taking this action to try to increase your FICO Scores? If so, you may want to reconsider doing so because closing down $0 balance credit cards could potentially decrease your FICO Scores.

The decision to close down inactive or infrequently used credit cards should be carefully evaluated before taking that action. Be forewarned that an action to close down $0 balance or inactive cards will not increase your FICO Scores, and could potentially result in a score decrease.

Can accounts that aren't on my credit report affect my score?

I'm in a tight spot financially and won't be able to pay all my bills this month. Something's got to give and since my rent and utility bills are not listed on my credit report, they'll be the first ones to slip. Should I let these bills go late instead of other bills like my credit cards that are listed on my credit report?

Though your FICO® score captures a pretty accurate picture of your credit history, not every account is recorded. You're assumption is right in that your good history of rental and utilities payments are not listed on your credit report. Even though your landlord, the cable and cell phone providers are pleased with your timely payments, this positive information isn't reported to the credit bureaus. That being said, there are a couple important reasons why you should continue to always pay these bills on time:

Reported delinquencies:

Even though your good payment history isn't reported, if you go late on these bills, your landlord or utility department has the right to report your bills as delinquent to the credit bureaus. If the bill continues to go unpaid your account could be turned over to a collection agency. Any of these blemishes to your credit report can be as harmful to your FICO score as the more commonly reported items such as late payments on loans or credit cards.

Future referrals:

The next time you need to move, your potential landlord is likely going to require a copy of your FICO score and credit report. In addition, he/she may want to contact your current landlord to check if you paid your rent on time. Even if you have a high FICO score, a potential landlord could choose another candidate if your current landlord reports that the rent is paid late or incomplete. As with any account, it's wise to pay on time and avoid burning your bridges. You may need them to put in a good word for you in the future.

The best advice is always to not take on more than you can handle and pay your bills on time. If that isn't possible, look to others for support. Before going late on any obligation, call the landlord or your utility company and tell them of your situation - they may be willing to work something out with you until you get on your feet again.

How long will negative information remain on my credit report?

It depends on the type of negative information. Here's the basic breakdown of how long different types of negative information will remain on your credit report:

• Late payments: 7 years
• Bankruptcies: 7 years for completed Chapter 13 bankruptcies and 10 years for Chapter 7 bankruptcies.
• Foreclosures: 7 years
• Collections: Generally, about 7 years, depending on the age of the debt being collected.
• Public Record: 7 years
• Keep in mind: For all of these negative items, the older they are the less impact they are going to have on your FICO® score. For example, a collection that is 5 years old will hurt much less than a collection that is 5 months old.

Can paying off installment loans cause a FICO Score to drop?

FICO® Scores weigh the amounts paid down and balances of mortgage and non-mortgage installment loans (such as auto or student loans) against the original loan amounts. In general, when an installment loan is first obtained the balance is high.

As the loan is paid down, the balance decreases which may have a positive impact on the score. However, analysis of credit data shows that having a low installment loan balance to loan amount ratio is even less risky than having no active installment loans at all. As a result, paying off the last of your active installment loans can result in a loss of points.

Note, even after a consumer has paid off their installment debt(s), it is still possible to have a very high FICO Score, by actively and responsibly managing other types of accounts.

Do FICO Scores change that much over time?

In general, FICO® scores do not change that much over time. But it's important to note that your FICO score is calculated each time it's requested; either by you or a lender. And each time it's calculated it's taking into consideration the information that is on your credit report at that time. So, as the information on your credit report changes, your FICO score can also change.

How much your FICO score changes from time to time is driven by a variety of factors such as:

• Your current credit profile - how you have managed your credit to date will affect how a particular action may impact your score. For example, new information on your credit report, such as opening a new credit account, is more likely to have a larger impact for someone with a limited credit history as compared to someone with a very full credit history.
• The change being reported - the "degree" of change being reported will have an impact. For example, if someone who usually pays bills on-time continues to do so (a positive action) then there will likely be only a small impact on their score one month later. On the other hand, if this same person files for bankruptcy or misses a payment, then there will most likely be a substantial impact on their score one month later.
• How quickly information is updated - there is sometimes a lag between when you perform an action (like paying off your credit card balance in full) and when it is reported by the creditor to the credit bureau. It's only when the credit bureau has the updated information that it will have an affect on your FICO score.
• Keep in mind: Small changes in your score can be important if you're looking to obtain a certain FICO score level or if you are striving to reach a certain lender's FICO score "cutoff" (the point above which a lender would accept a new application for credit, but below which, the credit application would be denied)

How are FICO Scores calculated for married couples?

Married couples don't have a joint FICO Score, they each have individual scores. The difference is that when you are single you usually only need to worry about your credit habits and profile. However, when you become married your spouse's credit habits and profile have an impact on yours. For example, if you have a credit card in both of your names and it doesn't get paid on time, that can affect both of your FICO Scores - and not in a good way.

How are FICO Scores different than credit scores?

Not all credit scores are FICO Scores. For over 25 years, FICO Scores have been the industry standard for determining a person's credit risk. Today, more than 90% of top lenders use FICO Scores to make faster, fairer, and more accurate lending decisions. Other credit scores can be very different from FICO Scores-sometimes by as much as 100 points!

What's in a name? When it comes to FICO Scores versus other credit scores, the answer is "quite a lot."

FICO Scores are used by 90% of top lenders to make decisions about credit approvals, terms, and interest rates. Chances are when you apply for a mortgage, an auto loan, credit card, or a new line of credit, the bank or lender is looking at your FICO Score.

The reason? Lenders know what they are getting when they review a FICO Score. FICO Scores are trusted to be a fair and reliable measure of whether a person will pay back their loan on time. By consistently using FICO Scores, lenders take on less risk, and you get faster and fairer access to the credit you need and can manage.

FICO Scores use unique algorithms to calculate your credit risk based on the information contained in your credit reports. While many other companies design their credit scores to look like a FICO Score, the mathematical formulas they use can vary greatly.

Unfortunately, the methods used by these other companies can lead to credit scores that are very different from your FICO Score. And even just a few points difference can have significant consequences on your terms and rates-potentially costing you hundreds or even thousands of dollars.

Why do FICO Scores matter?

Imagine a world where every lender used a completely different method to decide whether or not to give you a loan. You would have no way of knowing whether you would be approved at one place and denied at another.

This was actually the case not that long ago. There were all kinds of different ways that lenders would make decisions about extending credit (including data about a person's address, type of employment, and gender, among other things.). People were often approved or denied based on inconsistent and sometimes unfair information.

In 1989, FICO Scores were created as a way to help streamline the decision-making process for lenders and make the lending process more consistent and fairer for people like you.

What are the top 3 reasons you should choose FICO Scores over non-FICO credit scores?

"For years, there has been a lot of confusion among consumers over which credit scores matter. While there are many types of credit scores, FICO Scores matter the most because the majority of lenders use these scores to decide whether to approve loan applicants and at what interest rates."

- The Wall Street Journal

So why choose FICO Scores over other scores? Here are just a few reasons:

1. You can be confident you're seeing a score many lenders actually use. Because FICO Scores are the most widely used scores, it is very likely the lender will check your FICO Scores when you apply for credit.
2. You can make more informed financial decisions. With FICO Scores, you're better prepared to know when to apply for credit because you're viewing the scores used by 90% of the top lenders.
   Remember, non-FICO credit scores can differ by as much as 100 points. Other credit scores may vary from your FICO Score by several points. This variance could cause you to overestimate your likelihood of getting approved. According to a recent Consumers Union report, "score discrepancies can give consumers the false hope that they qualify for credit or low-interest rates when they do not. Consumers can face higher interest rates than expected, or be denied credit."
   On the flip side, non-FICO credit scores can lead you to underestimate your creditworthiness, keeping you from purchasing a much-needed family car or refinancing a mortgage that could save you thousands in interest.
3. You get 25+ years of experience and a score that evolves to meet your needs. The way we use credit has changed a lot since the first FICO Score. For example, today, we use credit cards more frequently and loans are larger to accommodate rising costs. As spending behaviors have changed, FICO Scores have evolved. For instance, FICO Scores continue to accurately predict credit risk so you can get access to the credit you need and get credit that you can manage. By choosing FICO Scores, you're getting decades of industry-leading knowledge and expertise that lenders value and trust.

How can I minimize the negative effect of a bankruptcy?

A bankruptcy is going to be factored into your FICO® score until it falls off of your credit report. While it may take up to ten years for a bankruptcy to fall off of your report, the impact of the bankruptcy will lessen over time.

If you plan to file a bankruptcy, here are some things you should do to make sure your creditors are accurately reporting the bankruptcy filing:

• check your credit report to ensure that accounts that were not part of the bankruptcy filing are not being reported with a bankruptcy status.
• make sure your bankruptcy is removed as soon as it is eligible to be "purged" from your credit report.
• After a bankruptcy has been filed, the sooner you begin retaining or re-establishing credit in good standing, the sooner you can expect your FICO score to rebound. A good practice is to obtain a secured credit card and continually make all of your payments on time. As time passes and the impact of the bankruptcy lessens, you might apply for a traditional credit card and also continually make all of your payments on time.

How can refinancing an auto loan impact my FICO Scores?

The decision to refinance an auto loan should include assessment of several factors, including:

• How much longer you plan to keep the automobile
• How much the original loan amount has already been paid down
• The likelihood you will be approved for the new loan and at what interest rate
• The amount of potential savings in interest rate expenses that may be realized with the refinance
• Any additional fees associated with the refinance process

If you do decide to refinance an auto loan, you should be aware this action could also potentially impact your FICO® Scores in several ways, including:

• Typically, a lender conducting the refinance would pull your credit report from one or more of the credit bureaus, which results in the posting of a "hard inquiry", which can negatively impact a FICO Score.
• If you are approved, that new credit obligation will likely be reported to all three credit bureaus-impacting time in file characteristics (months since most recently opened account, average age of accounts, etc.), which may also cause a decrease in score.
• A key factor often affecting FICO Score calculations is the amount paid down on active or open installment loans. A larger amount of the loan balance paid down relative to the original loan amount reported equates to lower credit risk and a greater amount of points are awarded in the score as compared to when the amount paid down relative to the original loan amount is smaller or when there are no installment loan balances owed.

For example, your current loan shows a pay down to date of $5,000 ($20,000 original loan amount with current balance of $15,000 for example). If you refinance, your former loan would be reported with a $0 balance and be considered closed. The new loan would be reported with a $15,000 balance and original loan amount of $15,000-reflecting higher risk as a lower amount of pay down being reflected. This will likely result in a loss of points until a larger amount of the original loan amount is paid down.

Generally speaking, consolidating or moving debt from one account to another will usually not help the score since the total amount owed remains the same.

What are the different types of bankruptcy and how is each considered by my FICO Score?

A bankruptcy will always be considered a very negative event by your FICO Score. How much of an impact it will have on your score will depend on your entire credit profile. There are a few types of bankruptcies and how long they stay on your credit report is different.

Someone that had spotless credit and a very high FICO Score could expect a huge drop in their score. On the other hand, someone with many negative items already listed on their credit report might only see a modest drop in their score. Another thing to note is that the more accounts included in the bankruptcy filing, the more of an impact on your score.

As long as the bankruptcy is listed on your credit report, it will be factored into your score. However, as time passes, the negative impact of the bankruptcy will lessen. Typically, here is how long you can expect bankruptcies to remain on your credit report (from the date filed):

• Chapter 7 and 11 bankruptcies up to 10 years.

  Chapter 7 bankruptcy is often called "liquidation" bankruptcy as it discharges most unsecured debt including personal loans and credit cards. When filing Chapter 7 bankruptcy, you can keep most of your assets and the process takes about 3-4 months.

  Chapter 11 bankruptcies are filed usually by large businesses.

• Chapter 13 bankruptcies up to 7 years.

  Chapter 13 bankruptcy is more a "reorganization" option in which you set up a repayment plan to pay back creditors over a specific period of time. Property liquidation is not required with Chapter 13, however, you'll need regular income in order to make your payments and it could take 3-5 years for the final settlement of this type of filing.

Keep in mind that these dates refer to the public record item associated with filing for bankruptcy. All of the individual accounts included in the bankruptcy should be removed from your credit report after 7 years.

Deciding to declare bankruptcy is a hard decision, but there is a community of people who have gone through it. Check out the myFICO Forums to discuss your situation.

What are the different categories of late payments and how do they affect my score?

Your FICO Score considers late payments using these general criteria; how recent the late payments are, how severe the late payments are, and how frequently the late payments occur. So this means that a recent late payment, could be more damaging to your score than a number of late payments that happened a long time ago.

You may have noticed on your credit report that late payments are listed by how late the payments are. Typically, creditors report late payments in one of these categories:

• 30-days late
• 60-days late
• 90-days late
• 120-days late
• 150-days late
• Charge off (written off as a loss because of severe delinquency)

Of course a 90-day late is worse than a 30-day late, but the important thing to understand is that you can recover from a late payment prior to charge-off by getting and staying current with your payments. If however, you continue not to pay your debt and your creditor either charges it off or sends it to a collection agency, it is considered a significant event with regard to your score and will likely have a severe negative impact.

It's important to always stay on top of all of your bills; your payment history is the largest factor in your FICO Score - 35%. There may be circumstances which cause you to be unable to keep current with your bills - maybe an unexpected medical emergency or losing your job.

Before being late for any payment, we recommend that you reach out to your creditor. The creditor may be willing to work something out with you so that it can work for both parties. If your creditors won't work with you, try to avoid having your account going delinquent so that the creditor won't sell your account to a collection agency. Again, late payments hurt, but you can get current with them by paying them off. You can never again get that account current once it is turned over to a collection agency.

What are the minimum requirements for a FICO Score?

In order to receive a valid FICO Score, the credit report must have:

• At least one account opened for six months or more, and
• At least one account that has been reported to the credit bureau within the past six months, and
• No indication of deceased on the credit report (Please note, if you share an account with another person this may affect you if the other account holder is reported deceased).

The minimum scoring criteria may be satisfied by a single account or by multiple accounts on a credit file. In certain rare cases, whether a given credit report qualifies for a FICO Score may vary across different FICO Score versions.

How do FICO Scores enter into the loan modification process, if at all?

Your servicer will likely use your FICO Score, along with other factors, to help determine the new terms of your loan, such as your mortgage rate. In general, your FICO Score plays a key role any time you apply for new credit or change the terms of a loan. That's why staying credit savvy and maintaining a good credit rating remains so important.

How does refinancing affect my FICO Score?

Refinancing and loan modifications may temporarily lower your FICO Scores in a few areas but can save you money with a lower monthly payment. How much a score is impacted depends on how it's reported and the additional information in your credit report.

If it's reported as the same loan with changes, three pieces of information associated with the loan modification may affect your score:

• the credit inquiry
• changes to the loan balance
• changes to the terms of that loan.

Overall, the impact of these changes on your FICO Score should be minimal.

If it's reported as a "new" loan, your score could still be affected by the same three factors above along with the additional impact of a new "open date."

A new or recent open date typically indicates that it's a new credit obligation and, as a result, can impact the score more than if the terms of the existing loan are simply changed.

Knowing if refinancing will have a positive or negative effect on your credit score can be tricky. So take it slowly and ask your lender as many questions as you can think of. And keep an eye on your credit report before, during and after the refinance process. This will help you make the right moves in the future.

Does contacting my servicer hurt my credit?

Simply contacting your servicer with questions has no effect on your FICO Score. If your servicer needs to check your credit, they must get your permission first. A credit check would result in an inquiry on your credit report, which can have a small impact on your score.

Any action after that may also impact your score-for example, if you pursue refinancing or loan modifications.

How do FICO Scores consider student loan shopping?

The growth of the student loan industry has increased public interest in how lenders assess the credit risk of young college-bound adults. Both large and small lenders often use FICO® credit scores to help them underwrite student loans. How the FICO credit scoring formulas treat credit inquiries depends on the way in which those inquiries are reported by lenders to each of the three credit bureaus. If the inquiries are reported by the lender in a manner that indicates rate shopping for a single loan (such as a mortgage, auto, or student loan), the FICO scoring formula reflects that in its calculation of your score (for a more comprehensive discussion of rate-shopping and inquiries, click here). In general, student loan shopping inquiries made during a focused time period (for example 30 days) will have little to no impact on your score. In the rare instance in which a credit inquiry related to a student loan is not coded so that it receives our special rate-shopping inquiry logic, that inquiry typically would decrease one's FICO score by only a few points.

What's the best advice for people shopping for student loans so they protect their FICO scores?

Doing a little homework first is always a good idea no matter what type of credit you're seeking. As you're shopping for the best student loan rate, the lenders you approach may request your credit report or credit score. You can generally avoid having those inquiries affect your score if you finish your rate shopping in a reasonable amount of time. That's easier if you first do your homework ahead of time and decide which companies to get quotes from. Then try to finish your rate shopping and finalize your loan within 30 days. Not only will loan rates be easier to compare when the quotes come only a few days apart, but you also will protect your FICO score.

What are inquiries and how do they affect my FICO Score?

When you apply for credit, you authorize those lenders to ask or "inquire" for a copy of your credit report from a credit bureau. When you later check your credit report, you may notice that their credit inquiries are listed. The only inquiries that count toward your FICO Scores are the ones that result from your applications for new credit.

It's important to know that there are 2 types of credit inquiries. Soft inquiries such as viewing your own credit report will not affect your FICO Score. Hard inquiries such as actively applying for a new credit card or mortgage will affect your score. Read below to see how much hard inquiries can affect your FICO Score.

More examples of hard inquiries:

• You go car shopping and apply for financing at the car dealership and they pull a credit report on you.
• You get a preapproved credit card offer in the mail and respond to the offer.
• You contact your credit card company and request a credit line increase. The company pulls a fresh credit report on you to help determine if they will grant the line increase.

More examples of soft inquiries:

• Your bank gets an updated FICO Score on all its customers to check the credit quality of its customer base.
• You got a new job and your employer pulled your credit report as part of its new employee screening process.

Do credit inquiries affect my FICO Score?

FICO's research shows that opening several credit accounts in a short period of time represents greater credit risk. When the information on your credit report indicates that you have been applying for multiple new credit lines in a short period of time (as opposed to rate shopping for a single loan, which is handled differently as discussed below), your FICO Scores can be lower as a result. Although FICO Scores only consider inquiries from the last 12 months, inquiries remain on your credit report for two years.

If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most Credit Scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on your credit scores.

How much will credit inquiries affect my score?

The impact from applying for credit will vary from person to person based on their unique credit histories. In general, credit inquiries have a small impact on your FICO Scores. For most people, one additional credit inquiry will take less than five points off their FICO Scores.

For perspective, the full range for FICO Scores is 300-850. Inquiries can have a greater impact if you have few accounts or a short credit history. Large numbers of inquiries also mean greater risk. Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports. While inquiries often can play a part in assessing risk, they play a minor part are only 10% of what makes up a FICO Score. Much more important factors for your scores are how timely you pay your bills and your overall debt burden as indicated on your credit report.

What to know about rate shopping

Research has indicated that FICO Scores are more predictive when they treat loans that commonly involve rate-shopping, such as mortgage, auto and student loans, in a different way. For these types of loans, FICO Scores ignore inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won't affect your scores while you're rate shopping.

In addition, FICO Scores look on your credit report for rate-shopping inquiries older than 30 days. If your FICO Scores find some, your scores will consider inquiries that fall in a typical shopping period as just one inquiry. For FICO Scores calculated from older versions of the scoring formula, this shopping period is any 14-day span. For FICO Scores calculated from the newest versions of the scoring formula, this shopping period is any 45-day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO Scores.

What to remember when you are rate shopping

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

When you look for new credit, only apply for and open new credit accounts as needed. And before you apply, it's good practice to review your credit report and FICO Scores to know where you stand. Viewing our own information will not affect your FICO Scores.

As a general rule, it is OK to apply for credit when needed. Be mindful of this information so you can start the credit-seeking process with more confidence.