Inquiries “Myth or Fact”
Reality and Fiction
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.
This is a excellent article, thank you! It’s the first time I come to your website, just found it in Facebook. I’ve been going around and there’s a lot of quality material. But I tried to add it to my Google Reader and just can’t. Perhaps it’s a only something going on with me… I’ll send you an email if it stays like this!
Thanks for the support we will keep giving you good info and if you have a problem let us know. If there are any topics you want to read about let us know and we will add it to our subjects for articles.
Great site you have. Congrats!
Thanks! Like your site too…