NJ First-Time Home Buyers

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Credit Scoring - Inquiries (6 of 6)

man on phoneI feel like a broken record, but Inquiries are one of the most misunderstood factors of the credit scoring model. Inquiries count for 10% of your overall credit score.  An inquiry is a check on your credit.  There are two types of inquiries, soft and hard. 

  • A soft inquiry is one that does not hurt your score.  Such examples are job credit checksinsurance checks, or credit card "pre-approved" offers.
  • A hard inquiry is a credit check that does put a ding on your score.  Such an example would be a credit check by a mortgage lender, an auto dealer, or a credit card company in certain situations.

Now to let the cat out of the bag ...

You have 45 days to have a mortgage lender (or auto lender) check your credit and have it only count as one inquiry.  This is completely contrary to what many loan officers will tell you.  Why is that?  First off, many loan officers don't educate themselves as true professionals.  But that aside, they don't want you shopping them.  So they put fear in your mind that if you check with other lenders and have them run your credit, that "you may not qualify anymore". 

Now it is true that multiple credit checks will bring your score down.  But that scenario would be when you are doing things like shopping for a car, and opening credit cards, and other credit checks at the same time.  The 45-day window is understood in the credit scoring model since it "allows you" to shop for better terms without killing your credit score.

A credit inquiry on average hits your credit score for 5 points, however it can hit it for anywhere from 2 points to 50 points.  You heard me right.  Why is this?  The credit scoring model has 1,000's of profiles that it uses to judge and create a credit score from.  Based off of statistics, people who are getting their credit checked very often, are those in financial trouble.  Hence having credit checks often can bring your score down as you are viewed as high risk.

Other Notes

  • Only the first 10 inquiries count each year
  • After 10 inquiries, they will not affect your credit score
  • Check out www.annualcreditreport.com to obtain a free copy of your credit report.  A PERSONAL check will not affect your score.

The topic of credit scores, the credit scoring model, and credit restoration always have a plethora of myths, misconceptions, and just a ton of questions. As you or someone you know comes across a situation that is confusing, or that you want to be certain that you handle right, just e-mail me.  I'll be happy to help out.  ~ Steve Kappre 

Credit Scoring – What Makes Up My Credit Score?

Credit Scoring – Payment History (2 of 6)

Credit Scoring – Balances (3 of 6)

Credit Scoring – History (4 of 6)

Credit Scoring – Mix of Accounts (5 of 6)

Credit Scoring - Inquiries

Comment balloon 1 commentStephen Kappre • October 30 2008 08:38AM

Comments

Great job Steve - you're right, very few understand how inquiries affect (or don't affect) FICO scores. To clarify, FICO uses 2 types of logic as it applies to inquiries -

  • The 30 day "Buffer" period - ALL mortgage and automotive inquires occurring within the past 30 days, regardless of how many there are are completely ignored.
  • Thereafter, the 45 day"de-dup" period treats all mortgage and automotive inquiries that ooccur within a 45 day rolling-window as a single inquiry.

The above applies ONLY to mortgage and automotive inquiries - every credit card or finance account inquiry will have a negative impact on the consumer's FICO score.

We provide more information on mortgage credit and scoring on our blog at www.CTNE.ws

 

Posted by Thomas Conwell, Mortgage PreFlight (Credit Technologies, Inc.) almost 9 years ago

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