“John, I read online that each inquiry lowers your credit score by 3 to 5 points. Is that true? I’ve also seen 12 points and I’ve seen zero points. Why are there so many different answers to the same simple question…how many points are inquiries worth?”
The reason there are so many different answers to that question is because nobody writing those articles actually knows the answer, and they’re all wrong. Nothing on a credit report is worth “x” points, nothing at all. That’s not how credit scoring works.
We’re all very use to taking tests where each question is worth some amount of points to the final grade. So, if you take a test that has 10 questions each of those questions is worth 10 points, right? So, if you miss 2 questions then your grade would be 80. Credit scoring doesn’t work remotely close to how normal testing works.
The individual credit item doesn’t have value (or “weight” as it’s called in a credit scoring model). The group of items has value or weight. So, instead of each inquiry being worth some small amount of points the total number of inquiries considered is what has a weight. Follow me…
Let’s say the measurement being considered is “The number of inquiries on your credit report in the past 12 month” (which is actually a real measurement in credit scoring systems). You can have a variety of answers to that question, right? It’s “variable”, hence the use of the term in a credit scoring model.
Now lets say the answers range accordingly…
0, 1, 2-4, 5+
Your number of inquiries is going to fall into one of those ranges, or classes or bins as they’re sometimes called. Now, based on what range you fall in you’re going to be given a certain number of points. The individual inquiry wasn’t assigned any points…the total number and where it fell was assigned points. See how that works?
Finally, every different measurement in a credit score works like that whether we’re talking about revolving utilization or the number of accounts with a balance or the presence of derogatory information. They all fall into some sort of range and that range is what’s assigned points. And, the points earned from all of those ranges are added together and that yields your final credit score.
Still, I’m sure someone is going to read this and ask…”Ok, but I still want to know how many points inquiries are worth.”