C an "window-shopping" on the World Wide Web for a car loan, mortgage, or credit card damage your credit rating? Perhaps. Reports of such incidents have surfaced in the news media, although no one knows for sure how many consumers have been affected.

When you apply for credit, the lender runs a credit check, which shows up on your credit report as an inquiry. Too many inquiries spread out over more than a month can hurt your credit score. That's because creditors view multiple inquiries, resulting from multiple applications, as a sign that you're scrambling for credit and may be taking on too much debt.

In fact, you may be in no financial trouble, but simply surfing the Web to scout the best credit deals. In the process, you unwittingly may shave points off your credit score, the "grade" that most lenders use at least as a first measure of creditworthiness.

You can avoid being blindsided if you learn a little about the workings of credit ratings. Take a look at these frequently asked questions about credit scores and credit applications on the Internet for guidance:

    Online credit
    repair scams

What goes into figuring my credit score, and who does it?
Think of a credit score as a numerical representation of everything in your credit history. Using a computer model, all that information is crunched into a number that indicates the likelihood that you'll repay what you borrow. Your credit score provides a quick, objective measure of your creditworthiness. It's just one factor lenders may weigh in deciding whether to extend you credit.

Many people believe that their credit scores appear on their credit reports. They don't. Rather, the information in your credit report feeds into determining your credit score. Your score means nothing unless you know which computer model calculated it. Many models exist, having vastly different scoring systems and criteria. For instance, in one model a high number indicates a good credit risk, while in another model zero is the best score.

Also, it's up to the lender to decide how to use credit scores. Even two lenders using the same risk-scoring model may use the scores differently. A score that would lead to credit approval at one lender may meet with denial at another.

Some large lenders calculate credit scores using their own computer models. Various companies also create scoring models for lenders to use. Some credit reporting agencies will, as a service to lenders, feed a credit history they have on file into a scoring model of the lender's choice, to create a credit score. But, again, that score does not appear on the credit report.

When does a credit inquiry show up on my credit report?
Inquiries fall into two categories. The first results when you initiate certain business transactions, such as applying for credit, insurance, or housing.

The second inquiry type arises from multiple sources. For example, if you've granted written permission to do so, a prospective employer may check your credit history. A credit card company may look at your credit history to decide whether to send a preapproved credit card offer, or to offer you a higher credit limit on your existing card. A lender from whom you've already borrowed may monitor your credit history from time to time to spot early signs of problems. Or you might request a copy of your credit report to make sure it's accurate.

Here's the important distinction: The first type of inquiry appears on your credit report, and stays on your report at least a year, often longer, depending on the credit reporting agency's policy. If you apply for new credit, a prospective lender will see a listing of these inquiries on your credit report. A lender will not, however, see a listing of the second type of inquiry. These appear only on your personal copy of your report—because you have a right to know about all parties that have checked your credit.

Will multiple inquiries sink my creditworthiness?
Maybe, maybe not. Most scoring models make some allowances. Multiple inquiries during a 14-day period usually count as one inquiry on your credit report, because this is considered typical behavior for someone shopping for credit.

Also, lenders usually ignore inquiries made in the last 30 days when calculating credit scores. "These allowances relate to auto loans and mortgages, but typically not credit cards," explains Rod Griffin, manager of consumer communications at Experian, an Allen, Texas-based credit reporting agency.

But if your credit shopping extends beyond a month, multiple inquiries could begin to count against you on your credit score. Griffin maintains that multiple inquiries alone usually wouldn't cause credit denial. "They generally don't result in 'declination' unless you're already in a gray area," he says.

Still, to avoid the risk of lowering your score, it's best to shop but not apply. "When you start applying for everything," Griffin notes, "you're going to generate many inquiries on your credit report ... In general, it's good advice to do the research, but don't apply until you've identified the particular loan or credit card you want."

Why do credit applications on the Internet pose a particular problem?
If you're in the market for an auto loan, you probably won't take the time to physically visit a dozen financial institutions to fill out loan applications. But you can do the same thing online in one evening, from your living room. The ease of online shopping for credit is a plus, but can be a temptation to overdo. Before you know it, you stack up multiple inquiries that will appear on your credit report.

The best way to avoid this problem is to be a smart window-shopper. Refrain from crossing the line between gazing through the window and stepping inside to fill out the paperwork. On the Internet, you cross that line when you enter personal data about yourself, such as your Social Security number.

Griffin advises reading Web site disclosures. What will the site owner do with the information you enter? If it will be used to generate a credit application, be sure that's what you want to do. "It's a bit like getting preapproved credit card offers in the mail," Griffin points out. "You don't have to send in for every card. And you don't have to fill in the forms online for every single thing you come across. Be selective. Be cautious."

When you have questions about credit, talk to the people at your credit union.

     Many people believe
     their credit score
     appears on their
     credit report.
     It doesn't.

     Too many
     credit inquiries
     spread out over
     more than a month
     can hurt your
     credit score.

Online credit repair scams
Credit repair scams have been around for years, promising the impossible. For a fee, they claim they'll erase your bad credit history and create a brand new credit identity for you. And it's all legal! In truth, they can't. And it's not.

Today, in addition to the newspaper, television, and radio ads they've always run, credit repair operations reach victims through yet another medium, the Internet. "They're taking advantage of consumers who can't afford to lose money, because by definition they're already down on their luck financially," says Steve Baker, director of the Midwest region of the Federal Trade Commission (FTC), in Chicago.

It's not only uneducated or naive consumers who succumb to the credit repair outfits' false promises. "They purport that they've found a glitch or a loophole in federal law that consumers can exploit," Baker says. "I think a reasonable person can fall for this."

Falling for such a scheme not only costs you money, for nothing, but also could land you in jail. It's a federal crime to make false statements on credit applications or to misrepresent your Social Security number.

Baker encourages anyone encountering credit repair fraud to file a complaint with the FTC. "People don't complain about the most blatant frauds," he reports. "It's even worse with credit repair because people are embarrassed about having bad credit. But those complaints are very important to us. They help us track who's doing this."

To file a complaint, call toll free at 877-FTC-HELP [382-4357], or TDD for the hearing impaired at 202-326-2502. Or go to FTC's Web site at www.ftc.gov.

© 2000 Credit Union National Association Inc.