There are two types of inquiries: Hard Inquiries and Soft Inquiries
Hard inquiries can affect your FICO score for up to 12 months, and stay on your credit report for 2 years.
Soft inquiries stay on your report for 2 years but do not affect your credit score.
Hard inquiries hurt your credit. Soft inquiries do not.
If you have a lot of hard inquiries on your credit report it can actually have significant negative impact on your credit. Most of the time a hard inquiry should be in connection with an application for credit by you, the consumer. If you’ve been a victim of identity theft or have collection accounts on your credit report, you may have unwanted or unauthorized hard inquiries that are hurting your credit score.
So what can you do about these hard inquiries?
The penalty under the FCRA for unauthorized hard inquiries is currently $1,000.
This means that a creditor could be forced to pay you up to $1,000 for each unauthorized inquiry they place.
If you did not apply for credit with a creditor, then they did not have a "permissible purpose" for the inquiry under the FCRA. You can start by writing the creditor a letter saying something like this:
"According to my credit report obtained from Experian, you placed an inquiry on my credit report on [date]. I have never applied for credit with your company. What was your permissible purpose for placing this inquiry on my credit report?"
If the inquiry was due to identity theft, you can use the ID Theft affidavit, police reports, and related documentation to help explain the situation and hopefully get the inquiry removed. It wouldn’t hurt to call the creditor as well in this case, and if possible obtain a fax number to send over the documentation.
If the creditor responds to your above request with no permissible purpose and still doesn’t remove the inquiry, you can follow up with more correspondence demanding removal of the inquiry and payment of the $1,000 penalty for their violation of the law.
What about collectors who place hard inquiries?
For collectors, their permissible purpose is basically "debt collection". Whether or not hard inquiries SHOULD be allowed by collectors is certainly up for debate. We believe it’s wrong because the only real purpose for a collector to place a hard inquiry as opposed to a soft inquiry is to hurt the consumer’s credit and finances. It’s an example of an anti-consumer aspect of the system. There has been some activity in the courts that indicates other people may agree with this.
For now though, the FCRA does state that "review or collection of an account of the consumer" is a permissible purpose for inquiries (FCRA 604(a)(3)(A)), and until the courts decide otherwise, this applies to hard inquiries too.
So what can be done about them then?
You could still write the collector and ask for a permissible purpose. They might not know that they have one, and until the matter is decided fully in the courts, this can probably be considered enough of a "gray" area to go ahead and challenge the inquiry directly.
Some consumers have reported to us that the indirect tactic of "inquiry bumping" has helped them remove inquiries from their credit reports. I won’t go into detail on it here, but the basic idea is that a large number of soft inquiries (such as those generated by credit monitoring services) will cause other inquiries (both hard and soft inquiries) to "fall off" of a person’s credit report. The concept makes sense, and may be worth the trouble depending on your situation.
The main thing to remember with inquiries is that they don’t last as long as other "negative" items on your credit report, so generally speaking they aren’t worth as much effort. With FICO scores they only really affect you for a year so keep this in mind when reviewing your credit reports!