What most consumers don't know about how their credit scores are calculated can really come back and bite them. For example, too many inquires to one's credit history is like fanning a fire; both can have negative consequences causing serious damage. Inquires are generated when consumers apply for new and various types of credit; therefore keeping this type of activity under control can help contain the "credit fire."
The Fair Isaac Corporation developed the FICO scoring system that is a mathematical equation determining an individual's ability to borrow money. Many criteria affect one's score such as late payment history, credit utilization ratio and too many inquires into one's account. Shopping around for credit should be kept to a minimum to control the quantities of queries into your account.
When consumers apply for credit they grant permission for a third party, in this case a credit provider, to pull their information for a credit check. This is usually a "hard pull" that directly affects your credit by temporarily lowering your FICO score by 5 points for a 6 months period. These hard pulls become part of your history and viewed by other creditors in the future. 5 points may not seem like a lot, but if you apply for a slew of credit at the same time, your FICO score can be greatly reduced and your credit interest rates can increase substantially.
While normally shopping around for bargains is a good idea, when it comes to the sensitive FICO scoring system, less is more. Sometimes new credit is a necessity, so consumers should choose their options wisely and be confident that they will qualify for the credit for which they are applying.
