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Inquiries and rate shopping for mortgages understood!


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Inquiries and rate shopping for mortgages understood!

Inquiries (credit pulls) and what they do to credit scores are not well understood.


First, inquiries don't have that much of an impact in the first place. When you go rate shopping for an auto or a mortgage the FICO scoring model IGNORES ALL HARD INQUIRIES FOR 30 DAYS from the first inquiry. Secondly, inquires that occur in a 14-day window are counted as one. This is of course assuming that the inquiries are coded correctly.

Inquiries are reported for two years but only factor into FICO scores for ONE YEAR. Now, some say that when you go from zero inquiries in one year to one, your score goes up say six points. Then when you go from one inquiry to two inquiries your score goes down say seven or eight points for a net loss of one or two points.

So for example, I went rate shopping for a mortgage on July 1 and I had zero inquiries in the last 12 months. I apply to nine lenders who all pull all three reports. The pulls occur between July 1 and July 13. Then I select a lender and we sign paperwork. The lender does another pull on each CRA on August 25 when we actually close on the mortgage. The first nine pulls are counted as one and are ignored until August 1 when they are counted as one pull and makes my score go up six points. The inquiry on Aug. 25 is outside the 14-day window and is counted as the second pull. It will have a negative effect of about seven or eight points that will not be factored into my FICO scores until Sep. 25. Because of the separation on the two inquiries, the net effect of the two credit inquiries would be about a one point drop.

Now, people forget that adding new accounts has all kinds of other implications score wise. First off, the number of months from the opening of an account is a factor. 18 months is a nice number and any time you open a new account that number plummets to one. So, you take a big temporary hit there. If your average age of all accounts (both open and closed accounts) drops to under five years that can be a big temporary score dropper. Thirdly, a new account is to new to rate for a month or so, so as a new account in and of it self has no immediate positive impact on your credit score.

This should go without saying but it needs to be said. When you are going for a mortgage and your middle score for the major income earner is under or close to 720 you should pay all revolving cards to zero about 35-50 days before you go rate shopping and do not apply for anything that would generate a credit inquiry until you close on the mortgage. And if you have to use your credit cards at all keep the utilization under 5%.

To add more complexity to this, but the following is good news, the window is in the process of moving to 45 days. This could be another reason why scores seem to vary from lender to consumer. The reality is that the lender is still using a FICO score but it may be out of date.

"The credit-scoring model recognizes that many consumers shop around for the best interest rates before purchasing a car or home, and that their searching may cause multiple lenders to request their credit report. To compensate for this, multiple auto or mortgage inquiries in any 14-day period are counted as just one inquiry.

-- In the newest formula used to calculate FICO scores, that 14-day period has been expanded to any 45-day period, Watt said. This means consumers can shop around for an auto loan for up to 45 days without affecting their scores. That doesn't mean the old 14-day rule doesn't still apply because some lenders might not use the new version.

The newest FICO version went online at all three credit agencies --TransUnion, Equifax and Experian -- in 2004, Watts said. Typically it takes lenders months to adjust their processes so they can accommodate revised formulas, and some lenders never adjust, he added."


Once you have say one inquiry on a report and you apply for a credit card and get it there is probably of 40% that applying for that card will generate an inquiry on just one report out of three and perhaps a 30% probability of two out of three and occasionally a picky lender will hit all three. If you keep your applications for credit spaced three or four moths apart, you don't need to worry about it. If one applied for three credit cards in a quarter year and all three inquires hit one credit report the FICO score from that report might be 10 or 22 points lower than it would have been just based in the inquiries themselves.

Can you dispute inquiries? Sure. You can dispute anything you want. What luck you will have with it will very.

I had a soft pull form American Express on an open account in good standing get reported as a hard and a soft insurance pull turned into a hard. I called the CRA. They deleted both inquiries within days. Before I new that I fired off a letter to the CEO of American Express. I got a phone call from a hi up type assistant that said Amex had sent a request to the CRA to have the inquiry coded correctly and they asked if I would like to have my account credited $50 to go out to dinner. The CRA deleted both inquiries and I got $50.

A golden rule in credit repair is that if you don’t fight you have zero chance of winning! Time does not heal all credit wounds. Only the Social Security administration does if they correctly report you death to the CRA's and they close your credit files!


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