Inquiries into your credit reports can hurt you in two ways: by lowering your credit score and by exposing you to ID theft and other abuse. Keeping all permissions in writing helps control these risks.

Reputable lenders or loan brokers will ask you sign a document that gives them formal permission to pull your credit as part of a loan application process. If you sign such document, make sure that it states clearly who has permission. Don't sign any document that gives a broker or potential lender open-ended permission to look. Most brokers should be able to pull one report and share their copy with potential lender; if your broker insists that he or she has to let different lenders pull your credit, only agree to give permission separately to each lender as they request. Some potential lenders who don't yet have a permissible purpose to pull your credit report may try tricks to get your permission without your understanding. Some will include slick language in their promotional brochures that states any response from you will constitute permission to pull your credit.

People who access your credit report have to have your permission-unless they have a "permissible purpose" for viewing that information. In other words, sometimes people have every right to pull your credit without your permission. Take the case of Karen Wiegand and Steve Marzluff. Under the terms of their divorce settlement in 1994, she got to keep the house, and he was required to make child support payments to her. In later discussions, they agreed that she would transfer her interest in the house to Marzluff, and he would pay her $6,000 and refinance the mortgage so that she was no longer a debtor on the property. She deeded the property to him in 1995. But he never refinanced. He also stopped making his child support payments in January 2000.

So-called "soft" inquiries do appear on your credit report, but they do not affect your credit rating. Soft inquiries include: your own requests for your credit report; credit checks performed by companies that want to send you a marketing offer; inquiries made by lenders or other businesses with which you already have an account; and inquiries made by prospective employers. Also, some middlemen—like credit counselors and loan brokers—may pull your credit. And they may allow several lenders to pull it, too. In most cases, these will all be considered soft inquiries.

While credit scoring models will cut you some slack when you're comparison shopping for an auto or home loan, they are not so approving of multiple inquiries from credit card issuers. One reason: You may have opened one or more credit card accounts within the last month or so, and they wouldn't appear on your credit report just yet. And, not to say that you would do so, but some people open a lot of credit card accounts at one time when they're planning to run up a whole lot of debt-and not pay it back. On this count, the credit bureau Experian echoes Fair, Isaac's conclusions: The more inquiries that appear on a borrower's credit file, the more likely a borrower may not be able to pay his or her bills as agreed.

That said, the credit industry understands the importance of comparison shopping for auto loans and mortgages. In fact, most lenders want to encourage shopping—since it increases the chance that you’ll give them a try. So, some changes to credit scoring models make in the 1990s and 2000s take into account the likelihood that a smart borrower may generate multiple inquiries along these lines. Under the FICO scoring model, it doesn’t matter how many inquiries for an auto or home loan that you generate in a 14-day period. They all count as a single inquiry. What’s more, your score does not include any mortgage or auto loan inquiries that were made in the 30 days prior to scoring. So, you’ve essentially got 44 days to get your act together. Once you’ve started filling out applications and generating inquiries, remember: The clock is ticking.

New credit is one of the factors used to determine your credit score. In fact, new credit accounts for 10 percent of your credit score. Hard inquiries are considered a subset of the new credit category. According to Fair, Isaac & Co., the information about inquiries that can be factored into your FICO score includes: the number of recently opened accounts that you have and the proportion of accounts that are recently opened compared with long-standing accounts, by type of account; the number of recent inquiries; the time since recent account openings, by type of account; and the time since you last had any credit inquiries.

Throughout this book, we recommend that you shop around for credit-a new credit card, a home loan or an auto loan. But how you shop around can affect your credit rating. The issue is whether or not a potential lender or credit card provider requests ("pulls" in industry jargon) your credit report. Every time one of these companies pulls your credit report, it counts as a "hard" inquiry. And hard inquiries lower your credit score. One way to be sure you're getting information-and not having your credit report pinged at the same time-is to withhold your Social Security number until you're ready to make a decision on a lender or credit card company. Unfortunately, this can be tricky-especially when you're shopping for credit on-line. Most on-line lenders require you to provide your Social Security number before they will quote an interest rate, since interest rates are closely tied to credit scores. And when you provide this information, you are applying for credit-and that gives the lender your permission to check your credit report.

Some potential employers may have a reasonable need to check out your credit history, but insurance companies? Where is their need? As it turns out, your credit rating and your driving record probably are completely unrelated. But auto insurers have found that your likelihood to pay your credit card bills is closely related to your likelihood to pay your insurance premiums. The same holds true for other types of insurance, too, including life insurance. However, many states are looking unfavorably on insurers’ use of credit histories in underwriting. Washington, Utah, Idaho and Maryland have already passed laws restricting insurance companies’ ability to do so, and many more states soon may follow suit.

Why would employers want to view your credit report? Perhaps you’ve applied for a job at a bank or someplace else where you will be handling money. Perhaps you’ve applied for a high-security job, where you will have access to valuable information. Or perhaps you’re going to be working with other valuables—such as jewelry, stock certificates or bonds. In all of these cases, the employer or potential employer wants to be certain that you are responsible, not desperate for money. After all, if you’re desperate and you’re surrounded by temptation, you might take advantage of the situation. Employers and potential employers do receive a different version of your credit report than the one that goes to potential lenders. It’s usually less detailed, with regard to your credit history; and it doesn’t count as an inquiry on your credit score.