The two categories are not degrees of the same event. They are different records, visible to different audiences, produced by different permissible purposes under the Fair Credit Reporting Act.
Generated when your file is accessed without an application from you: your own review, an existing creditor reviewing your account, a prescreened offer, an employer check where you consented. It appears only on the copy you request. No lender sees it and no scoring model reads it. You can generate a hundred of them in a week with no effect whatsoever.
Generated when you apply for credit and the lender pulls your file to decide. It is visible to other lenders for two years and readable by models for one. The typical effect on a thick, established file is a few points, and it fades.
The exception is a thin file. On a file with three tradelines, four applications in a month is a much larger proportion of the available signal than it is on a file with twenty, and the models treat it accordingly.
Mortgage, auto and student loan inquiries of the same type inside a short window are collapsed and counted once, because shopping for one loan should not look like applying for five. The window length depends on the model generation — commonly two weeks on older models and up to forty-five days on newer ones. Since you cannot know which model a given lender uses, the practical rule is to do your shopping inside a fortnight and stop worrying about it.
What is not collapsed
Credit card applications. Each one stands alone, regardless of how close together they are. Mixing a card application into an auto shopping window does not bring it under the same umbrella.
An inquiry is a record of an application, and applications usually produce new accounts. On most files the new account — its zero payment history, its effect on average age, its new limit — moves the number more than the inquiry that preceded it. If you are trying to explain a drop after applying for something, look at the tradeline before you blame the inquiry.
Related: how utilization is measured, which is the other input people misread.
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