Financial Counseling Certification Program (FiCEP) Practice Exam

Which of the following describes a consequence of inquiries on credit scores?

1. They can improve credit scores

2. They have no impact at all

3. They may lower credit scores

4. They are automatically removed after six months

The correct answer is: They may lower credit scores

Inquiries into credit scores refer to the requests for your credit report, typically made when you apply for a loan or a line of credit. These inquiries can be categorized as either hard inquiries or soft inquiries. Hard inquiries occur when a lender checks your credit for lending purposes, while soft inquiries are more benign and do not affect your credit score. The correct choice indicates that such inquiries may lower credit scores. This happens because hard inquiries can signal to lenders that you are seeking credit and may increase the perceived risk of lending to you. Each hard inquiry might lower a credit score by a few points, although this effect is usually temporary. Over time, as you manage your credit responsibly, the impact of these inquiries diminishes. The other options, while addressing aspects of credit scores, do not accurately reflect the consequences of inquiries. For instance, the idea that inquiries can improve credit scores does not hold true; while positive credit behaviors can enhance scores, inquiries themselves do not have a beneficial effect. Similarly, stating that inquiries have no impact disregards the reality that hard inquiries do tend to reduce scores to some extent. The notion that inquiries are automatically removed after six months is partially true, as inquiries remain visible for two years but typically only impact the credit score for the