Tag Archives: credit inquiries

Do Inquiries Hurt Your Credit Score?

Here is the newest (and accurate) information about credit inquiries.

A credit inquiry is when a company pulls your credit report when you make an application for credit.

The last thing you want is for your credit score to go down while you’re shopping for a home loan. Here’s what you need to know:

  • For lenders using FICO 04, you have 30 days to shop for a mortgage, automobile, or student loan without having a penalty to your credit. No matter how many credit pulls you have in that time period, it will count as only one credit pull. (This is pretty much all mortgage lenders.)
  • For lenders using FICO 8 and 9, you have 45 days. But this is virtually no mortgage lenders, so in reality, it only applies to automobile loans and student loans. (Ask if they are using FICO 4 or FICO 8 or 9 to be sure of the 45 day timeline as opposed to 30 days.)
  • For credit cards, store cards, or lines of credit, there is no grace period. Every credit pull counts separately, and is subject to lowering your credit score.

If you need a credit card, don’t worry about the minor hit to your score, because establishing credit is part of the process.

If you already have three lines of credit and will be buying a home soon, avoid opening any new credit. Believe me, a 10 percent discount on merchandise is not worth taking a higher interest rate on your $200,000 home loan because your score dropped. Don’t risk it!

And remember, NEVER NEVER take out an automobile loan, finance a computer, appliances, or furniture, or open any other new credit six months before applying for a mortgage loan. You don’t want to risk lowering your credit score right when you’re trying to get a low rate for your home.

Are Credit Inquiries Hurting Your Credit Score?

A credit inquiry is when a creditor (such as Visa, a bank, a landlord) pulls your credit report. Lately, people have been asking me how much this hurts their credit score and why. Here are the facts.

Too Many Hard Inquiries Hurt Your Score

A hard inquiry is when you apply for credit. If you applied for three credit cards during the holidays in order to save on your purchase, your credit score has been hit. Why? Because the credit bureaus do not know how you are going to use this new credit, whether or not you will max out your cards, or if you will pay on time. Also, when a person suddenly applies for a lot of new credit, it is a concern as to whether or not they will be able to afford the new, upcoming bills. Therefore, your score is temporarily lowered for six months until you have established your record with these new cards.

The Exception: When Hard Inquiries Will Not Hurt Your Score

On the contrary, you can apply for a mortgage or car loan with three companies in a short time span (less than 45 days) without it hurting your score. Why? Because the credit bureaus do not think you are getting ready to buy three new houses or cars. They assume you are shopping for the best deal.

That said, if you have six or more mortgage inquiries, it is going to raise a red flag to the underwriter approving your loan. Why? Because, as I explained in Mortgage Rip-Offs and Money Savers, shopping three lenders is sufficient. If you apply for a mortgage with many lenders, it looks like everyone is turning you down. That makes other lenders ask why no one wants to lend to you. You will then need to write a letter of explanation for your loan file.

Soft Inquiries Do Not Affect Your Credit Score

A soft credit inquiry is any of the following:

  • You request your own credit report.
  • An employer pulls your credit report.
  • Your current credit card company looks at your credit report to check how you are managing your credit. (Yes, they have the legal right to do this.)
  • Creditors troll your credit report to see if you are a good candidate to send a solicitation to. (To stop this annoying practice, go to http://www.optoutprescreen.com and get off creditors’ mailing lists.)

Don’t concern yourself with soft credit inquiries. They do not hurt your score in any way.

Unauthorized Hard Credit Inquiries

It is illegal for any creditor or lender to pull your credit report without your knowledge and consent. As a licensed, ethical loan officer, I ask every person who wants to get pre-approved for financing to give me their permission to order their credit report before I do so. And then, I make a record of this permission, whether it was by email, in writing on a form, or verbally, with the date. Other ethical loan officers do the same.

If a mortgage lender, bank, credit union, credit card company, or other loan company pulled a hard inquiry on your credit report without your permission, you have the legal right to have that inquiry removed from your report so that it does not harm your score.

First, contact the creditor to make sure you are correct about the hard inquiry. Then if they cannot provide you with your consent verification, ask them to send you and the credit bureaus a signed letter on company letterhead that requests the inquiry to be removed.

How Much Do Inquiries Lower Your Score?

The credit bureaus claim that an inquiry impacts your score only by about five points. However, in real life, it’s a different story.

One credit repair specialist tells me he has seen credit scores lowered by 15 points after several hard inquiries (such as multiple credit card inquiries). Another credit repair specialist said he saw a client’s credit score increase by 24 points after unauthorized hard inquiries were removed.

The higher your credit score, the more inquiries impact your score, because there are not other factors such as late payments and collections docking your score.

If you have a low credit score due to negative credit, then inquiries are the least of your worries. Work on establishing on-time payments and lowering your credit card balances to below 30% of the limit first, because those are your priorities.

For more information about how credit attorneys and certified credit repair specialists legally delete bad credit and restore your good name, please see here.

Thank you for reading my blog. I do my best to inform people of the facts about achieving “A” credit, because the American finance system is dependent on credit. Unless you are wealthy and will pay cash for everything — including a home — having a good credit score is essential.

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New Rules for Home Buyers from Fannie Mae’s DU 10.0

Last Wednesday, I got to speak face-to-face with Steve Lojan, an executive at Fannie Mae, which gave me the opportunity to ask about the new DU10.0 underwriting program that has caused some confusion.Credit card balance

The main controversy has to do with carrying a balance on your credit card. Will consumers be penalized for paying the amount owned in full, or for not paying in full? This is important information to know, because it affects all our credit scores.

Which Type of Credit Card User are You–a Revolver or a Transactor?

A revolver is a person who carries a balance on his or her credit card from month to month. A revolver might pay only the minimum balance due or more, but not the entire balance.

A transactor is a person who pays off the entire transaction or entire balance each month. A transactor never pays credit card interest, because no balance is carried over.

The credit bureaus consider transactors to be less risky, because by paying for everything they purchased when the bill comes due shows that they are living within their means.

The new DU10.0 will also differentiate, but this is where the confusion comes in. Revolvers will not be penalized by Fannie Mae’s new program. As long as the revolver pays the minimum due (which is their contractual right), then they will receive the same mortgage approval as the transactor.

“We are making it easier, not harder, for people to get approved for a mortgage,” Mr. Lojan said.

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Please note: This is regarding the automated underwriting system for a home loan, not the credit score. To save money and get the highest credit score, you must be a transactor who keeps a low balance-to-limit ratio.
The credit bureau does not keep a running daily tab on your credit card balance. The bureaus only know what the creditor reports (monthly).
An emerging type of data gathering called trended data or “time series payment data” is changing this. Equifax and TransUnion now have the ability to collect payment information from data furnishers even if there is no balance on the card at the time of reporting. The amount paid monthly on a card can now be collected and furnished to DU to be used in its decision making process.*

More Leniency for Mortgage Lates

Fannie Mae’s new program will no longer penalize a late payment on a mortgage more heavily than a late payment on a car or other installment loan.

Less Leniency for Short Sales

DU10.0 will count short sales and mortgage charge-offs the same as foreclosures (the worst/most serious derogatory credit).

Change to Inquiries

Too many mortgage inquiries (over three for some lenders, over six for others) triggers a red flag for the underwriter. The underwriter begins asking suspicious questions, such as: Why is this person applying for so many loans? Have our competitors been turning them down? And if so, what do they know that we don’t? The borrower is required to explain all the inquiries.

The new DU10.0 will treat all mortgage inquiries made within 30 days the same as one inquiry — just as the credit bureaus have been doing. Hopefully, this will eliminate the need for a Letter of Explanation to be signed and placed in the loan file; although, I don’t expect many underwriters to change their habit quickly.

If you have any questions, please let me know and I will do my best to get answers.

Many thanks to Jared Kluver for suggesting this topic.

*Thanks to Chad Kusner at Credit Repair Resources for the information about trended data.

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