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In the wake of recent events in the banking industry, including the sky high default rate on mortgages, lending standards seem to be tightening by the day. What this means for you as a consumer is you will need even better credit to qualify for the best rates and terms on new loans. An often ignored component of your credit score and your overall credit pictures is credit inquiries.

Every time you apply for new credit and the lender pulls a copy of your credit report an inquiry is added to your credit file. This happens whether or not you are approved for and accept the loan. These inquiries are viewed by lenders and are seen as a way to judge the amount of new credit you have been applying for recently. Too many inquiries tells banks you may be hungry for new credit and could possibly be a high risk borrower.

The good news is these inquiries don't last forever. According to the Fair Credit Reporting Act (FCRA) credit inquiries are allowed to stay on your credit report for up to 24 months. Most lenders are interested in the most recent inquiries only, usually the ones made in the last 6 months. If your files do show excessive inquiries but you are able to provide reasonable explanations for them lenders are many times willing to overlook it.

There are some things you can do to limit the number of inquiries in your credit files. The most important thing is only applying for the credit you need. Another thing to remember is to be careful about how many people you allow to pull your credit. If you are shopping for a car it is best to obtain financing prior to visiting the dealership. This not only ensures you the best loan (often dealerships are not the best place to get auto loans) but also limits the number of dealerships that pull your credit while you are still car shopping.

Finally, if you already have quite a few inquiries there's still hope. Inquiries older than 12 months have a very minimal impact on your credit score. As with many other items in your credit file the newer the item the greater the credit score impact, the older the item the lesser the impact.

Bottom line, now more than ever consumers need to pay attention to the details on their credit reports. You should make sure the information is accurate and current. You should strive to build a strong credit history by paying all payments on time and keeping your balances low. And lastly you should try to limit the number of inquiries on your reports so you don't appear to be desperate for new credit when applying for new loans.

Learn more about this author, Dale G. Holmes.
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