Dear Mary: My son is looking for an apartment near his new job in order to avoid a horrendous daily commute. He recently told me that each time a landlord/manager runs a credit check on him, his credit score drops 15 points. What recourse does he have?
Dear Judy: Most potential landlords and their management companies do check a potential tenant’s credit history because it’s a good indicator of how a person lives his or her life.
Credit inquiries are classified as either “hard inquiries” or “soft inquiries”—only hard inquiries have an affect on one’s FICO score.
Soft inquiries are all credit inquiries where your credit is NOT being reviewed by a prospective lender. These include inquiries where you’re checking your own credit, and inquiries made by businesses with whom you already have a credit account.
Hard inquiries are inquiries where a potential lender is reviewing your credit because you’ve applied for credit with them. These include credit checks when you’ve applied for an auto loan, mortgage, credit card, insurance and a search for a rental property such as an apartment.
Each of these types of credit checks count as a single inquiry. One exception occurs when you are “rate shopping”. That’s a smart thing to do, and your FICO score considers all inquiries within a 45-day period for a mortgage, an auto loan or a student loan as a single inquiry. This same guideline also applies to a search for a rental property such as an apartment. Your son can avoid lowering his FICO Score by doing his apartment hunting within a short period.
Generally, a single inquiry on its own will not reduce a person’s FICO score by 15 points—5 points would be more typical. In your son’s case, I can only assume that other factors, which he may or may not be aware of, have come into play to lower his score such as a his credit-card utilization rate (the ratio between his available credit and the amount he’s actually using at any given time), timely payments, other hard inquiries or any number of other factors in this crazy game of credit scoring.
Dear Mary: Will cosigning an auto loan for my son affect my credit score? Wayne
Dear Wayne: Absolutely. By cosigning, you are accepting full responsibility for the debt if the borrower (in this case, your son) does not pay as agreed. A cosigned account will appear on both your credit history and your son’s and will have an impact on both yours and your son’s credit scores.
My best advice, even though you didn’t ask, is that if you end up cosigning, consider this loan your own and that you will end up repaying it. If you cannot afford to do that, do not cosign.