The topic of
third party inquiries or "credit reviews" has caused much
confusion for both professionals and consumers. Professionals hire
pulling services to gain access to the three credit bureau report for
each consumer applying for financing. This access is considered an
inquiry or review and shows the banker a credit history from each of
the three credit bureaus merged into one report with three fico
scores. Most lenders take the middle number of the three scores as
the indicator of the level of risk the potential borrower represents.
Once the score and reports are analyzed the bank can define an
applicant's ability to get approval for a loan and the interest rate
that will apply.
Each third party credit review is considered a hard
pull, also called a hard
inquiry. Hard pulls can drop credit scores two to
five points each. In order for hard inquiries to have
the least affect on their credit score, the consumer must use a
limited period of time called a "window" to have various
banks pull their credit scores while shopping for a loan. Most banks in
today's economy use a 14 day window where numerous inquiries are only
counted as one reduction of two-five points. This means that
consumers applying for loans on August 1st through DE Capital would
have until August 14th to apply to as many other banks for mortgage
approval without more than one inquiry score reduction occurring.
After 14 days, the inquiry window would close, and having another
bank pull credit scores would cause an additional score decrease of
two to five points (totaling ten points).
When consumers
buy credit scores online, or receive promotional offers, it means
there has been a credit review, this however is considered a soft pull, soft review, or
soft inquiry, and the scores do not drop at all. This is
a great way to see your credit status prior to shopping for a loan
without seeing score dips. Soft inquiries cannot be seen by lenders,
and therefore do not reduce scores. When consumers look to pull their
credit scores online, there is only one site that will provide Fico
scores www.MyFico.com.
(Many consumers are confused, thinking they are purchasing Fico
scores when they may really be buying Vantage, Plus, Credit Karma, or
Equifax scores, all of which differ in various ways.) The MyFico site
supplies consumers with a direct view of Trans Union and Equifax
credit profiles and Fico scores (the score most similar to the
bankers score). Unfortunately, consumers cannot get a view of their
Experian report with a Fico score since Experian will not allow Fico
to sell or use their information with regard to consumers direct. And
though consumers cannot see the Experian Fico scores on their own,
knowing the other two bureau scores can leave a consumer some leeway
in predicting the middle Fico score to be viewed by bankers.
For example, if Sam had a 780 Fico for Trans Union and a 772 Fico for
Equifax, then he could rest assured that his middle score would be
considered excellent (over a 740). Even if his Experian Fico score
turned out to be a 520, his middle score would remain at 772. If his
Trans Union and Equifax scores were 780 and 650, however, then it
would be far more important to know his third score: a third score
above 740 would put him in an excellent credit position, but a score
below 650 would put him in a poor position.
The time frame
of hard inquiries is important when shopping for a property and
consumers must be aware of how it can affect their credit score
before having their scores randomly pulled by a third party. For
example, if a consumer needs a 740 plus and above Fico score for loan
approval and his score is a 743 a hard inquiry could push him right
into a rejection or a higher interest rate issued by the bank. Since
his middle score is close to the threshold of approval he must weigh
the importance and timing of a third party review before allowing his
credit to be pulled. If he pulls his own Fico score in advance he not
only avoids the inquiry reduction but gives himself room for
improving his score through credit repair, paying down balances on
revolving credit, or some other options revealed during our credit
analysis process.
Remember, student loans, car loans or leases, and banker credit
inquiries are all viewed in separate windows and will affect the
score differently than credit card reviews. Credit card reviews are
all considered hard inquiries and reduce the score two-five points.
If a promotional credit card inquiry is done, it is considered a soft
pull and will not hurt credit until the consumer applies for approval
on the offer.
If a consumer
buys their Fico score online through the Fico site they must remember
that this score, although very similar, may differ from what bankers
see by a minimal amount. This difference is directly related to
inquiry windows. The Fico site for consumer use has a 30 day window
in comparison with the 14 day window banks use.
"Great credit brings great
opportunity!!"
Copyright 2011
