Do Inquiries Damage Credit Bureau Scores
by Mario from Palm Bay, Florida
Ask Kate if inquiries damage your credit bureau scores: Hi Kate...love your website. Every time I read a page, I end up opening 3 or 4 more to read. I have questions about my credit report that have been a bit of a moving target for me as it seems that everyone has a different answer. I have heard that every time a mortgage lender pulls credit that it takes 5 points off your score, for each major credit company... Ouch! Is this true?
I am in the process of looking to build a home and I am looking at 2 possible lenders but prior to deciding that perhaps building a home was the way to go for me. I went thru an online lender who ended up pulling my credit report. In the end it ended up that they couldn't provide me the loan type I was looking for - Jumbo VA CP loan. (Note from Kate: This is a high balance Veteran Administration construction-to-permanent loan.)
Now I am starting to work with other lenders who offer the above loan but I am concerned that all these people are pulling my credit and damaging my score.
Is there a grace period in which lenders can pull your credit report without impacting your credit score? For example if I have 2 lenders pulling my credit report within 2 weeks of each other and they pull from all 3 major credit reporting agencies will that be 5 points per credit reporting agency per lender that will come off my credit report?
I also have to buy a new car at the end of the year and I don't want my credit report to be impacted.
Kate Answers: Do Inquiries Damage Credit Bureau Scores
Thank you for your kind words about Get Your Best Mortgage Rate!
Not being face-to-face with my Readers, it is gratifying to get your feed-back.
Basic Credit Pointers
Here are some basics about credit bureaus, reports, scores, and inquiries.
Your credit history is not static, rather dynamic. It is constantly changing. I've seen multiple credit reports on the same person differ even though pulled within minutes of each other.
Why would this be? The three major credit agencies
, Equifax, Experian, and TransUnion, each have their proprietary algorithms and weigh data accordingly. In addition, electronic information is constantly flowing in from creditors who by the way do not necessarily report to every major credit bureau.
So today's report may not look like the same tomorrow. Hey, it may vary in data within the next five minutes. If only we knew the perfect time and date to order a credit report, right?
Slippery Credit Bureau Scores
I learned in lending that there are few absolutes. Credit scoring certainly falls in line with my statement.
I laugh to myself when I think how we analyzed histories before the introduction of credit bureau scoring. Every lender had their own little formula which was pretty simplistic. One I remember in particular went like this...
No 30 day late payments on any accounts within the last year before loan application. No 60 day lates in the last 2 years and no 90 day lates, ever! Any reference to bankruptcy, no matter how long ago, meant a denial letter was in the mail.
When credit bureau scores were introduced, more people got approved for mortgages. But after awhile, I began to notice apparent discrepancies.
Real estate investors with perfect credit histories found their credit scores were penalized because they had multiple mortgage accounts. But an 18 year old without a proven track history was awarded an 800 FICO score. That is infuriating to a 50 year old investor who never dreamed of being late on any obligations!
Multiple Credit Inquiry Consequences
A couple who came to me for many mortgages made an appointment for their next home loan. The husband could not sleep one night and had decided to brush up on current interest rates. When I pulled their credit history, his wife was not a happy camper. Their report was overflowing with credit inquiries.
At that point it wasn't just a matter of slashed credit scores. The sheer number of inquiries was adversely affecting their approval. The underwriter finally agreed to manually approve the loan after I explained (and explained some more) the situation.
Rule of thumb is that each inquiry is weighted about five points and lingers on your history up to two years, albeit with the most effect during the first six to twelve months. There are numerous if, and, and buts to the rule of thumb, however nailing them down to absolutes is impossible.
Working for banks, mortgage companies, and brokering to umpteen lenders, I saw more credit score inconsistencies and discrepancies to last a lifetime. So what can you count on? Credit inquiries will lower your scores. Not a humungous amount, but even five points is enough to tip a borrower into a higher mortgage rate category. Yes, as you said, ouch!
Lenders and Credit Reports
This leaves the mortgage shopper between a rock and a hard place. Until credit is pulled, it can be hard to get a firm answer from a banker. However don't feel obligated to turn over your social security number and permission to run credit. If a lender won't talk to you, this is a good indicator that they shouldn't make the short list.
So when you ask if there is a grace period in which lenders can pull your credit report without impacting your credit score, I'd answer which mortgage lender
and which reporting credit agency
! There is no hard and fast rule.
The safest way is to minimize the number of inquiries is to shop mortgage lenders and ask questions
. Do not get sucked into picking a banker based on the lowest quote. Read these two pages on closing costs until you know them like the back of your hand:
This will start you on your way to developing a gut instinct.
I suggest you also ask friends and relatives which lender they'd use a second time AND refer without hesitation to their mom. Go to this page on my website for a link to the Nationwide Mortgage Licensing System Consumer Access
which allows you to view information contained in a national data base.
On the bright side, the negative impact of credit inquiries on scoring dissipates more quickly than collections or late payments. In addition, it seems with a strong credit profile, inquiries have less negative impact. So be smart about shopping for a lender and try to keep in perspective that inquiries are just another part of the mortgage process.
Good luck and best wishes,
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