Credit grantors use an automated process called "account monitoring" to review the payment performance and credit usage of their own customers. This process helps lenders reward customers who use credit responsibly and limit the financial risk associated with customers who don't.

A parent might review a teenage son's timely attendance at the dinner table and his consistency in taking out the trash before deciding whether to continue weekend car privileges.

Before additional privileges are granted, other sources of information about the son's behavior may be considered (e.g., school report card, football coach, or music teacher).

Lenders track the credit performance of their card holders to make similar decisions in managing their financial risk.

But while they are familiar with the payment patterns of their own customers, they don't know how well those same customers pay other creditors.

With details from other credit grantors, a lender might decide to increase an individual's credit limit, decrease it, or even close an account.

Lenders Monitor Accounts Differently
This review process is called account monitoring or account management. It's an automated process that scans customer credit reports for certain risk characteristics as defined by the creditor.

Lenders depend on different pieces of information based on their individual experiences with their customers, their marketing plans, their tolerance for financial risk, and many other factors.

Some credit grantors, for example, are concerned only about whether all your payments are on time. Others look only at a consumer's current account balances in relation to the total credit limit.

Some lenders review their accounts frequently. Others review accounts once a year, primarily to establish new credit limits.

Monitoring Allowed by Law
What gives lenders the right to look at an individual's credit history at any time?

While you maintain a credit relationship, you give the lender permission under federal law to access your credit report for this permissible business purpose.

This helps you as a credit-active consumer. When lenders effectively manage the business risk of extending credit, their losses are minimized.

What are Inquiries?
When a lender reviews or monitors a consumer's payment history, an inquiry appears on the individual's credit report. The word inquiry refers to someone--you or a credit grantor--asking to view your credit report.

There are different types of inquiries. One is the account monitoring inquiry discussed above. Another occurs when a potential lender reviews your report after you apply for new credit.

Applying for New Credit
When you apply for new credit, the potential lender will not see inquiries made for the purposes of account monitoring, unsolicited credit offers, or your own request for a copy of your credit report.

This protects you as a credit-active consumer because excessive inquiries may make creditors uncertain about extending you additional credit.

Why? Inquiries indicate you've applied for new credit, which could result in additional debt. Therefore, potential lenders may view multiple recent inquiries on your credit report as a sign that you're overextending yourself.

On the other hand, account monitoring inquiries, for example, are not relevant to a potential lender because they do not indicate increased financial obligations. Therefore, lenders don't need to see them.