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Credit Inquiries and your FICO Score

I often get this question. "How many times are you going to pull my credit report?"

Well, the answer to this is... as often as it takes to get my client the best possible deal!!
A credit pull by a lender is considered a 'Hard Inquiry'. Which is a reporting of the borrower trying to establish credit. The FICO scoring model will recognize that you are trying to establish credit and lower your credit score a few points. You usually get those points back when you establish that account. "Soft Inquiries' are permissable credit pulls by creditors that you have a wroking relationship. They may pull a soft inquiry on occassion to make sure their money is still safe with you or if thy are conteplating a limit increase on your revolving accounts.... soft inquiries do not affect credit scores. Noone sees soft inquiries except YOU when you pull your own report.

So, we have two issues here.

1. Why do lenders pull credit so many times?
2. What is the impact on my credit score?

#1 is easy. #2 is a little more convoluted..... but there is an answer.

Why DO lenders pull credit so often?

The first thing I do when I take an application is pull a credit report. Coupled with the loan application, I can usually determine with great accuracy what type of loan to put this borrower in to. With good to decent credit(along with other factors) my first stop is to my Automated Underwriting engines through Fannie Mae or Freddie Mac. I re-issue the credit report into their system(reissued, not a new credit pull), then let the computer spit out an answer as to whether they will back the loan. If I get what I am looking for, then I shop a few rate sheets and quote the client..... all with one credit pull!! If not, then we may have a situation where we are going to be looking at Alt-A products or subprime. Most of my lenders will use my credit report. Some will not. So, I manually qualify the borrower based on the info in the loan application and credit report. It is common to have the actual lender pull another credit report when the loan is submitted(after the borrower inks a contract). I might have a client who has a really unique credit profile, like job gaps or a short credit history, but with some decent compensating factors like high cash reserves. To get a full pre-approval, the hypothetical loan must be submitted to the lender where they actually pull their own credit report. <= They may even pull it again when the borrower finds a home and is under contract. They may even pull an additional credit report right before closing just to make sure the borrower hasn't gone nuts and bought a new car and a bunch of furniture as that can affect debt ratios.
Whew, thankfully, that lender took the deal..... because if the file is denied, then it must be submitted to another lender who will start all over pulling 'Hard Inquiries' on the credit report.

What is the impact of credit inquiries on FICO scores?

In their 'What to know about rate shopping', Fair Isaac says the following:
Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though youre only looking for one loan. To compensate for this, the score ignores all mortgage and auto 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 auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score. <= Source: MyFICO.com MyFICO.com is the consumer division of Fair Isaac Co, who developed the FICO score.

Was that a mouthful? Well, I don't know for sure, but I don't think many reputable lenders are pulling credit out of the trunks of their cars on an antiquated system. So it is a pretty good bet that you have a solid 30 day (maybe 45) window to shop for a loan or 'be shopped around' by a broker.

This can all be very different Banks, Mortgage Bankers & Credit Unions. They typically have in house underwriting and can use the same credit report for a variety of loan types. While I wouldn't be surprised to see a lender pull multiple reports, it is less likely than with a Broker.

Want to know more about credit scores and repairing/rebuilding credit? http://www.dallasloanguy.com/docs/about_credit.pdf

Please read this free e-book About Credit. This book is intended to provide a basic foundation of understanding of your rights and relationships with your creditors. Please do not consider this legal advice.

Tom Burris
DallasLoanGuy.com

Texas Home Loans

Dallas Mortgage Loan Officer

Posted by Tom Burris | Texas Mortgage Dallas Mortgage FHA on 07/04/2007 11:54 PM

Comments (14)

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Originally posted at: Texas Home Loan Blog: Credit Inquiries and your FICO Score

14 Comments on Credit Inquiries and your FICO Score

JUL

2007

Ugh!! A wall of words....

I will work on it.

JUL

2007

Tom.... that is one good thing about being a banker. My credit reports are good for 90 days. But you do bring up some good points that not many lenders will explain to their clients. thanks for sharing this.

jeff belonger

Thanks Jeff.

I am thinking about making a move to a banker. The commission is better at the brokerages, but I spend too much time babysitting my files. LOL

All reports are good for 90 days even if i broker deal out

the thing is that if it is brokered out to a lender who wont accept your credit(like WMC will only use theirs)

I do things the exact way Tom does but you will always run into that client who goes to you and 2 other brokers slash bankers to see who can get him the "better deal"

now with all 3 of us runjning credit and if we cant get a DU approval and are all sending his deal to other lenders who are also running his credit it could be run 10 times in a few weeks which will damage it

Thats why having the right mortgage person helps

Clients were referred to me by Realtors who know that i can be trusted and am not a scam artist

Tom:

Good points regarding FICO.

Watch out for those trigger leads.

I didn't know about the 30 day rule. Thanks, I'll pass it along to some buyers shopping lenders so they won't be penalized.

Dominick One of the poits are that multiple inquiries do NOT harm credit. Even if they are shopping you

Bill LOL, Trigger leads.... I should put a sticky note somewhere. It might be wise to address this upfront.

Missy Shopping is a good thing. As long as they don't go nuts. Sooner or later they will just be buying from the biggest liar if they get too many quotes.

Thanks for stopping by guys.

Dominick..... I disagree. Not all lenders will allow for credit reports up to 90 days. In the subprime market, several will only accept 30 to 45 days. I never did break it down in my comment.

And you can have as many lenders pull your credit in a 14 day period, as long as they are registered with the credit agencies as a lender and not as an unknown.

jeff b

Jeff, that has gone to 30 days. Even 45 days on the newest versions of fico.

And you are correct, that the inquiry has to be coded as a mortgage inquiry. But like my comment, I do not think many lenders pull credit as an 'unknown'

Tom.... you lost me. You said that has gone to 30 days and even 45 days on the newst versions of fico?? What has? thanks

Sorry Jeff.

The FICO scoring system ignores all mortgage inquiries over the past 30 days. (it used to be 14 days).

They also tell me that the newest version of the scoring model ignores all mortgage crdit pulls for 45 days. Don't know much about that, but I am sure that 30 days is safe.

JUL

2007

Tom, this was a great post with good information. Thanks for putting it out there!

JUL

2007

Tom, I am both real estate and mortgage broker. I usually advice my clients to get a pre-qualification first. It gives them a good idea what the can afford while they shop for a house. Once they get to the point that they are ready making offers, we get them a pre-approval. Theoretically the credit report in California is valid for 90 days, but many lenders will pull another report just before funding (it happens more offer to large prime lenders than to subprime, but I guess it is changing). So, our clients have a record pulled from 1 up to 3 times and we try to make sure that it happens within 30 days, to avoid impact on their score. It will be nice if the time for multiple pulls will extend to 45 days. Check my post, please. I would appreciate your comments. Thanks.

Important and well written. You are quite patient my friend.

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