Most people
think that all credit scores are the same but if you read my last
post you can see this is not true. This week I want to focus on
Fico Scores but it should be clear that Fico Scores sold to the
consumer at www.myfico.com
are different from the scores that you would get from a mortgage
"lender", even though they are both called Fico Scores.
After doing a study of inquiries and getting different information
from many sources this is what I learned. The 3rd party pulling services,
that provide scores to Mortgage Bankers from Fico,
explained that each lender picks a model attached to their
scores. This model varies the outcome of the score because some
models use a older 14 day window for inquiries, some use a 30 day
window, and others use a 45 day window.
Here are some
examples of the mortgage Fico Score explained by pulling
services. This should help clarify this information (keep in
mind each inquiry reduces the score 2-4 points):
1. A Bank picks a model with a 14 day window for
inquiries. This means if you start shopping for a loan on day 1
(mortgages, car loan or lease, student loan) and the loan closes
after having 7 lenders pull your credit by day 13 your score would
drop as if you had 1 inquiry. If your score was a 755 it could
be at most a 753 after the 14 day window. All of those
inquiries would count as a 2 point reduction.
2. Another
bank picks a model with a 30 day window for inquiries. This
means if you start shopping for a loan day 1 and you have 10 bankers
pull your credit score by day 30 that counts as one inquiry. At
day 32-50 you have 10 more bankers pull your credit score. Your
credit is pulled again on day 60 for the final bank you want to use
to close your loan. If you started at a 755 the score is now a
731. It has dropped 24 points (2 points for the 1st 10
inquiries within the 30 day window + 22 points for the 11 inquiries
within the last 32-60 days). If you started at a 689 your score
would have dropped to a 665.
3. The
last lender picks a model with a 45 day window for inquiries.
This means if you start shopping on day 1 and have 35 lenders pull
your credit within a 45 day window and 1 lender pulls it on day 48
your score would be, at the most, a 751 (your first 35 inquiries
count as 2 points and the last inquiry on day 48 reduces the score 2
points as well). Starting at the same 755 score you would lose
4 points.
The key is after
the lenders window expires (depending on the model chosen by lender)
each inquiry is counted as a 2-4 point reduction on the score.
The score has the potential to reduce dramatically. Once your
score reduces below a 740, and then below a 720, your interest rate
on the mortgage you are applying for will increase. You become a
higher risk. You can also be denied funding if your score
decreases further or if the type of loan you are applying for will
not take less than a certain score.
Now let's talk
about Consumer Fico Scores. According to myfico.com their
scores are much more forgiving. If you shopped for a loan 4
times in a year, and had 10 inquiries in 4 different bundles of 30
day periods, each bundle would be counted as one inquiry or a 2-4
point reduction.
I decided since
there is so much different info it would be best to speak directly
with a Fico specialist to get confirmation of what I read on the fico
site and what the pulling service experts had to say. The Fico Expert
told me that the Mortgage Scores given to lenders by the pulling
services follow this same model used by the Consumer Fico
Scores. His description of this score was very different from
what the Fico site said. According to him each 30 day period of
inquiry bundles (for auto and mortgage inquiries only) is considered
no point reduction. He stated that there is also a 15 day
extension after the 30 day period, called a "de-duplication
period" that all inquiries occurring at this time only count as
1 inquiry or 2-4 point reduction. An example of this would
be on day 1 -30 you have 12 lenders pull your credit score there
would be no point reduction. After the 30 day period ends you
have 5 more lenders pull your credit score within a 15 day period.
This 15 day period of inquiries would only count as 1 inquiry.
Your points would reduce by 2-4 points. He did say that
depending on the model the lender uses: 14, 30, or 45 days, the score
can vary. When I asked the Fico expert why his definition
was so different from the rest he said "it is so complicated
that most people don't understand it and wind up giving false
information and creating misconceptions".
What the expert
said was clearly denied by the pulling services that provide the
Mortgage Lenders with Scores. The 4-5 different pulling
services I spoke with were adamant about the fact that after the
window ends each inquiry is viewed separately and bundles are not
considered for past windows. Each inquiry would reduce the
scores 2-4 points after the current window expires. So if
you have 25 inquiries after the window expires your score can go down
over 50 points.
Okay, so this is
quite a bit of conflicting information and which expert do we
believe? The one thing that is very clear is your lenders Fico
score will be different from the Fico Consumer site score.
Even if the
pulling services are wrong about each inquiry counting as a 2 point
reduction (after the window expires) it doesn't change the fact that
different models are used (14, 30 &45 day windows). This
will alter the consistency of the Fico consumer and Fico mortgage
scores. From our experience Fico Consumer and Fico Mortgage
Scores are usually different. If Fico uses a 30 day window, and
your Mortgage Bank uses a 14 day window, the difference could be
substantial depending on how many inquiries happened after day
14. It should be noted that any other inquiries, besides
mortgage and auto, will not be viewed in batches and will reduce your
score individually 2-4 points.
Finally, your
best plan is to insure your scores are always MUCH higher than
necessary by learning the rules and being diligent about following
them.
More score
insight to come!!
Copyright ©2009
North Shore Advisory Inc.
