Financial Counseling Certification Program (FiCEP) Practice Exam

Is it true that inquiries impact credit scores?

1. True

2. False

The correct answer is: True

Inquiries can indeed impact credit scores, and this is a significant aspect of how credit scoring works. When a lender or another authorized party checks an individual's credit report to assess their creditworthiness, this is referred to as a "hard inquiry." Hard inquiries may lower a credit score by a few points because they indicate that the individual might be seeking new credit. This can be interpreted as a higher risk of taking on additional debt. On the other hand, “soft inquiries,” such as checking your own credit report or when a company pre-approves you for a credit offer, do not impact the score. It's also worth noting that the impact of hard inquiries diminishes over time, typically falling off the credit report entirely after a couple of years. Understanding this can help individuals manage their credit more effectively by limiting the number of hard inquiries made in a short period. Therefore, the assertion that inquiries affect credit scores is accurate, as they play a role in the overall assessment of an individual's creditworthiness.