Mortgage Minute: Credit inquiries

A frequent question I get asked when someone applies for a loan is whether pulling their credit report is going to affect their credit score. The answer to that question is “it might.”

In general, inquiries have a small impact. A single inquiry can lower your score by less than five points. Inquiries only represent one type of characteristic and account for less than 10% of the score.

Credit scoring models use specialized logic that accounts for rate shopping for student, auto and mortgage loans. In general, student loan, auto and mortgage related inquiries that occur 30 days prior to scoring have no effect at all on the score. Outside of this 30-day period, student loan, auto, and mortgage-related inquiries that occur within any 45-day period are treated as a single inquiry.

This inquiry logic applies to loans of the same type. In other words, if someone were shopping for a car loan and a home loan during the same 45-day period, the auto loan inquiries would be counted as one inquiry, and the mortgage loan inquiries would be counted separately as another inquiry. The reason for this is that they represent two separate searches for credit.

The only inquiries that count toward your credit score are those that result when a consumer actively applies for new credit. The reason for this is that research shows that consumers who are seeking new credit accounts are riskier than consumers who are not seeking credit. Although inquiries are a part of assessing risk, they only play a minor part in this. Much more weight is given to how timely the consumer pays their bills and debt as indicated on the credit report.

Please note that the information above is taken directly from myfico.com, please check out their website for more detailed information regarding inquiries. https://www.myfico.com/

Michael Scharfe has been a lender at First Security Bank for 10 years. Reach him at [email protected].