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Inquiries
"Myth" and "Fact"
Over
the past 10 years almost every time I speak about inquiries I hear many
different versions of how they affect credit scores. I am sure that your
experience with the inquiry explanation has been just as inconsistent. It
seems unclear as to who would be the best source of factual data on the
inquiry subject. Would it be Fico, the creator of the Fico Scores used by
the Mortgage Industry, or the pulling services that provide the information
as a middle man between the credit bureaus and the Mortgage Banks? We
decided to gather as much information from ALL of these sources to give you
the clearest answer possible about the reality of the “Inquiry”
mystery.
First
we went directly to FICO
and this is what we found:
“The
impact from applying for credit will vary from person to person based on
their unique credit histories. In general, credit inquiries have a small
impact on one's FICO score. For most people, one additional credit inquiry
will take less than five points off their FICO score. For perspective, the
full range for FICO scores is 300-850®. Inquiries can have a greater impact
if you have few accounts or a short credit history.”
Well
this is somewhat true in our experience but very much relative to what the
clients score is and what it needs to be.
For
example: John Smith has a middle score of 742 and applies for a mortgage
with 3 lenders over the course of 2.5 months. His score can drop 6-12
points which could make a substantial difference in his rate or ability to
get the loan he wants.
Another
example: Andy Stone, who followed the same steps John Smith did, had a
middle score of 680 and was applying for an FHA loan. He would be paying
higher points for his loan when his score dropped the 6-12 points as well.
The
part about having few accounts we all know. If you only have 2 accounts
your score will most likely be low in the first place so of course the
inquiries will impact you even more.
For
non Mortgage Professionals who need more info to understand the last
examples: The middle score is found by taking all 3 Fico Scores, each
credit bureau, and picking the middle #. Example: John Smith Experian is a
780, his Trans Union is a 742, and his Equifax is a 723. You can see how
the 742 is the middle number picked. All loans have restrictions on scores.
If you have over a 740 you will get a better rate and for FHA loans below a
680 would incur more points to pay.
Fico went on to explain:
“Research has indicated that the FICO score is more
predictive when it treats loans that commonly involve rate-shopping, such
as mortgage, auto and student loans, in a different way. For these types of
loans, the FICO score ignores inquiries made in the 30 days prior to
scoring. So, if you find a loan within 30 days, the inquiries won't affect
your score while you're rate shopping. In addition, the score looks on your
credit report for rate-shopping inquiries older than 30 days. If it finds
some, it counts those inquiries that fall in a typical shopping period as
just one inquiry when determining your score”.
This
is where it starts to get confusing but we did manage to get some more info
that might help. They are stating that within the 30 day period 20
inquiries would only affect you as much as one inquiry or 2-4 points. After
the 31st day each inquiry is treated separately and could hit your score
2-4 points. They then go on to say that any grouping of inquiries within 30
days prior to your immediate loan shopping will also be treated as one
inquiry. To be clear the mortgage inquiries, car inquiries, and student
loan inquiries are different groups. If shopping for all 3 in one 30 day
period they will be counted separately so you would have the impact of 3
inquiries (up to 12 point deduction). If 4 months prior you had shopped for
another car and you had 20 inquiries in a 30 day period those would be
counted as 1 inquiry as well.
Fico
explained why inquiries are viewed negatively:
“Large
numbers of inquiries also mean greater risk. Statistically, people with six
inquiries or more on their credit reports can be up to eight times more
likely to declare bankruptcy than people with no inquiries on their
reports”
When
speaking with various pulling services these were our findings:
LandAmerica- First specialist told me within 14 days as many
times as you want, as long as the inquiry is from the same industry, it
will only count as 1. After pressing for more info the specialist told me
she really wasn’t very sure and I was passed to a Supervisor. Connie Ext
228, the Supervisors answer: If a client starts to shop for a mortgage May
2 and has their credit pulled by the first lender, they can then have it
pulled as many times as they would like by other lenders, it will not count
as more then 1 pull (2-3 point reduction) if they close by May 31. What is
important to remember is after the 30 day period every pull will count as a
2-3 point reduction. The 30 day window halts all deduction of points UNTIL
the 30 days pass. That means the client we were talking about had his score
pulled 10 times within May 2 to May 31st. After May 31st his score can go
down as much as 30 points.
Kroll Factual Data- First specialist told me 9 given
times within a month before it counts as one. When pressed for more info
she confirmed she didn’t really know and passed me to her Supervisor Beth,
Ext 7368. Beth gave me the same info as the Supervisor at LendAmerica.
Rels Credit (Wells Fargo uses)- I was told by
the initial specialist and the Supervisor Terry, Ext 5229, that within a 14
day period 1 pull is counted know matter how many times it is pulled. After
the 14 day period each pull will count anywhere from 1-3 point deduction.
The 14 days are NOT business days.
CIS Pulling Service- The specialist told me AFTER the 30
days of Banks pulling the report for a loan application the score lumps
them all together and they don’t impact your score as much. If you pull the
report before the 30 days you will see all the inquiries and it will hurt
your credit. This was inaccurate. The Supervisor Suzanne, Ext 302, said
that all the inquiries were lumped together as one within the 30 day
period. After 30 days each inquiry will be listed and will impact the
score.
Equifax Mortgage Solutions (Preferred Empire Mortgage uses)- The
service specialist was more capable and confident when answering the
questions and explained that there is a 30 day window as we were told by
many of the other services. Janet Ext 2038 would not give us a specific
number on the point reduction an inquiry would cause. She also suggested
each Lender that uses them should check with their rep. to see what amount
of days their window is (see below).
We
found out that the pulling services offer different variations of the same
score and lenders pick which one they would like. The old variation has a
14 day window and the current variation has a 30 day window. A new
variation was recently created with a 45 day window. So we now know it
could vary depending on the scoring model lenders use. This makes it even
more confusing but does explain why sometimes inquiries impact the score
differently then we expect.
It
also became clear that if you want valid information from your pulling
service you cannot rely on a specialist. You must speak to a Supervisor if
you want to be sure. The other issue was the pulling services point
decrease description which was up to 2 points lower, per inquiry, then Fico
described. All the pulling services stated a 2-3 point decrease while Fico
said up to 4 points.
Copyright ©2009 North Shore Advisory Inc.
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