There are a few types of credit inquiries individuals will encounter in life. Not all of them affect credit scores, but none of them will improve your credit scores.  Like Google and its algorithm, the Fair Isaac Corp. does not divulge the details of how FICO scores are derived. The major reporting agencies only give out general criteria. Although the factors are the same for each individual, the weight they are given is situational.

The purpose of the FICO score is to determine an individual’s credit worthiness. Even beyond the score, one lender may treat the details of a person’s credit history differently than another lender. Some lenders may have a higher acceptable limit for credit inquiries in a year or quarter.

Soft Credit Inquiries

When you sign up with a new cellphone service provider or switch auto insurance companies, they likely will run a credit check. These types of credit inquiries are soft pulls that do not affect your credit score.

If you’re not applying for new credit, the credit inquiry will not affect your credit score. Insurance companies use credit information to determine a credit-based insurance score for drivers. Statistically, drivers with bad credit tend to have more accident claims. Some states do not allow insurers to use credit to calculate risk.

Potential landlords and employers also may make soft credit inquiries. Sometimes, credit card companies perform soft pulls before making a pre-approval, promotional offer. Landlords and cellular companies want to determine whether you are likely to pay on time. Employers want to make sure you’re not in financial trouble and are responsible.

Hard Credit Inquiries

The hard inquiries that are most common and that give people the most trouble are for new credit card accounts. Applying for a new card has become so easy, it can take less than five minutes to complete an application and less than a minute to find out whether you were approved and for how much.

Promotions can be tempting, and they are meant to be. There usually is a catch. To get the 50,000 bonus points for opening a new account, the card holder must spend at least a certain amount within a short period of time.

Each time you apply for a new card, your credit score will take about a five-point hit, according to myFICO. If you apply for six new cards in the same quarter, that could raise a red flag and lead to applications being denied.

How the number of applications affects your credit score depends on the credit you already have and how long you’ve had it.

In the case of mortgage loan, auto loan or student loan shopping, credit lenders tend to treat multiple inquiries during a 30-day period as one. These types of loans can help build up a credit score more than a credit card account can. Repaying loans generally is more structured, and it’s easier to set up automatic payments. For those who are not disciplined in their spending, loans may be the safest way to build up a credit score.

Overall Credit Health

Credit inquiries only account for a small percentage of your total credit score. Payment history, credit utilization (debt-to-credit ratio), derogatory marks, age of credit and types of credit (mortgage, installment and revolving) are more significant.

Years ago, there were viable schemes for making money with credit cards. Banks offered 0 interest cash advances with no fee and savings accounts paid relatively high interest. For disciplined, organized individuals, this was a somewhat lucrative hobby. Those days are gone. Nowadays, savings account interest rates are 1 percent or less, and credit card cash advances usually come with a 3 percent fee or more.

Owning multiple credit cards can help consumers lower total utilization. This can lead to a higher credit score. This strategy works best when all the cards have a low balance. Credit card companies usually don’t cancel underused cards. They sometimes lower the credit limit on them. Over time, you could accumulate a shoebox full of credit cards without balances and have a great credit score.

Another trick that worked years ago was to regularly request credit limit increases. Institutions are less generous with increases, now. Making requests can negatively affect a FICO score, if they are made about the same time as credit card applications. They can have a cumulative effect.  Not all companies use a hard inquiry for a limit-increase request.

Checking the Score

It’s easy to figure out your most recent credit score. Many major credit card companies and banks offer free credit scores through their websites or with monthly billing statements. The score might be a couple of weeks old depending on which credit card company you use. Discover tends to report more recent scores than American Express.

Another free way to get information about your credit score and health is through Credit Karma. The site lists scores from TransUnion and Equifax every seven days. It also shows payment history, average age of credit and inquiries.

Thanks to the Fair Credit Reporting Act, you can obtain a free annual credit report from the three reporting agencies. The reports are helpful for spotting errors and forgotten credit cards. If you find an error such as an account listed as open that should not be, filling out the online dispute form with each agency is painless.

On your reports, you will notice credit inquiries only go back two years. These reports do not give you a free credit score.

Chasing Points

Spending $4,000 on stuff you don’t need just to rack up air miles or get a points bonus worth $625 in cash does not make sense on paper. That’s worse than using coupons at the grocery store to buy products you normally don’t eat. Besides the potential hit to your credit score from opening a bunch of new accounts in the same quarter, the chances of not paying off the cards on time increase with every new card.

It can be more profitable to own a variety of cards from different companies long-term. In this situation, you can take advantage of quarterly promotions each card offers without hurting your credit score.

If you don’t pay off your balance then interest will eat up the $20 cash back bonus you earned that month. After you start carrying a balance, the interest charges tend to continue past the month you finally paid off the balance.

Canceling Cards

There are only a couple of instances in which it makes sense to cancel a card. The most important thing to remember is to cancel within the first year; otherwise, you’ll potentially decrease your credit score by shortening your credit history.

A store credit card you applied for just to get a discount on a big purchase is an example of one you might want to cancel in the first year. But the only reason would be that you ran out of room in your shoebox. You could just cut it up and forget about it. Over time, it will help your credit history by remaining open with no balance.

Another rational for canceling a card in the first year is if you just applied for it to get a bonus, but there is an annual fee. Even if it was waved the first year, make sure it is financially practical to keep the card and pay the fee every year. You may be able to switch to a card without a fee with the same institution. This will maintain your credit limit and history.

Play It Safe

Before applying for a new credit card or a loan, make sure you know why you are doing it. Even if purpose of a mortgage loan or student loan is to improve quality of life and build a more promising future, it’s best to take a cold, realistic look at your finances first.

Make sure you will be able to pay off the loan in a reasonable time and that your monthly payments will leave you with enough money to afford food and other essentials. Student loans should not take a lifetime to pay off. Paying $250,000 to get a degree that will not lead to lucrative career may not be a wise investment.

Buying a house at the high end of your price range and paying for private mortgage insurance can be a big gamble. Maybe you’ll get a raise at work in a year and maybe you’ll be able to refinance your mortgage for better terms. It is more sensible to invest in an affordable home or just rent until you are more financially well off.

Except in business, cars usually are losing but necessary investments. The car doesn’t have to be a Maserati. If you have discretionary income then go for it. For income to be discretionary, all your bills have to be paid and your retirement accounts have to be funded.

In life, it’s good to test limits. With credit inquiries and credit scores, it’s best to avoid such testing. High credit scores can save you money and lead to great opportunities.