The truth about inquiries on your credit report

The truth about inquiries on your credit report (it isn't what you think).

Minneapolis, MN: As a Licensed Mortgage Loan Officer, I pull and review thousands of credit reports every year. The confusion from the general public about what inquiries are, and how they effect your credit is overwhelming.

The quick thing to know? 

For 99% of people 99% of the time, you should NEVER ever worry or be concerned about a lender reviewing your credit, or generating an inquiry.

There, I said it.  Stop worrying!

Historically,  the presence of inquiries on a credit report has only a small impact on credit scores, if any impact at all. Scores, carrying much less importance than late payments, the amount owed, and the length of time a person has used credit.

NEW CREDIT INQUIRIES

So does your scores really drop if you apply for new credit?  The answer isn't really as simple as yes or no. First of all, if it does, they probably won’t drop much. Then, where did you start from.  Someone with an 830 score to start will probably not move with one inquiry, while someone who started with a 540 is more likely to move.

If you apply for several credit cards within a short period of time, multiple requests for your credit report information (“inquiries”) will appear on your report. Looking for new credit can indicate higher risk to a lender, but your scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and tend to have little impact on your score.

SHORT-TERM EFFECT

For most people, an inquiry has a 5-point or less TEMPORARY impact, if any at all. The impact of any inquiry essentially falls off after 90-days, almost like it never happened.  Maximum effect of inquiries is 10% of your score - but again, only short-term!

HARD INQUIRIES

Hard inquiries, which are those generated by you applying for credit, are the only inquires that may matter. Many types of inquiries are ignored completely. They do not count inquiries when you order your own credit report or credit score.  It also doesn't count inquiries a lender has made for your credit report or score in order to make you a “pre-approved” credit offer, or to review your account with them, even though you may see these inquiries on your credit report. Inquiries that are marked as coming from employers or insurers are not counted either.

SHOPPING INQUIRIES

Scoring models largely use specialized logic that accounts for rate shopping for student, auto and mortgage loans. In general, student loans, car loans and mortgage loan inquiries that occur 30 days prior to a new inquiry for the same type of credit have little or no effect at all on scores.

Think about it, if you were to shop for home loan, you generally call a few lenders the same day, or over just a few days. So those loan inquiries would be counted as just one inquiry, and have no additional effect on your score.

So don't worry, it is OK to let me pull credit if you applied with another mortgage company last week. So if you are going to shop, do it all within a 30-day window.

TIP: Many creditors falsely "warn" you about inquiries as a tool to keep you from shopping with the competition.

CREDIT. WHAT SHOULD I WORRY ABOUT

Credit scoring isn't that complicated.  You really only have to do two things to maintain good credit. Pay your bills on time, and keep credit card balances as low as possible.  To really rock your credit, add these extra tips; don't close old credit card accounts (length of credit history matters), for example, I have a Sears account open since the late 1980's (that I never use). Have a mix of credit, like mortgage loan, car loan, couple of credit cards (but don't get a car loan just for some mix). Finally, don't have too many inquiries in the 90-day window prior to applying for new credit.

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Joe Metzler is a Senior Mortgage Loan Officer for Minnesota based Mortgages Unlimited. He was named the 2014 Minnesota Loan Officer of the Year, and Top 300 Loan Officers in the Nation for 2010, 2015, 2016.  To finance with Mortgages Unlimited, your local preferred mortgage lender for Minnesota, Wisconsin, and South Dakota, simply call  (651) 552-3681, or APPLY ONLINE. NMLS 274132. Equal Hosuing Lender.