Mortgage Lenders Pulling Credit CRUSHES Your Score!
I am a bit of a conspiracy theorist, but I feel pretty strongly that I have this one right. Federal law requires that inquiries be listed as a risk factor with your credit scores if they account for even a single point, so they are almost always included. But, inquiries are usually the last factor because they have the least impact. That said, the headline above is FALSE. Mortgage lenders pulling your credit does NOT crush your score. Within a 45-day window, multiple credit checks from mortgage lenders are recorded on your credit report as a single inquiry. The impact on your credit is the same no matter how many lenders you consult, as long as the last credit check is within 45 days of the first credit check. Don’t believe me? Here it is right on the Consumer Financial Protection Bureau’s website.
What WILL HURT your score are other types of lenders pulling your credit. The 45-day rule applies only to credit checks from mortgage lenders or brokers, credit card and other inquiries are processed separately. By how much is difficult to answer. Best answer is: It depends.
There are three credit bureaus, Experian, Equifax and TransUnion. Each credit bureau has unique information about you that may not be captured by the other two, or the same data element may be stored or displayed differently. The information on your credit report is supplied by lenders, collection agencies and court records at the discretion of those companies, at their timelines. Most major companies report monthly, and most companies report to all three bureaus. Every time each lender reports new information, payments made, balances changing, etc., your score will change.
Inquiries tell creditors that you are thinking of taking on new debt. An inquiry typically has a small, but yes, negative, impact on your credit score. Why? Because it indicates something is changing. And it is not yet determined how that will affect your ability to repay your debts.
One of the first things you need to know is the difference between FICO and FAKO scores. FAKO refers to the non-FICO scores offered by various companies. FAKO scores have little value since few of them are used by lenders and they do not match closely to FICO scores. Therefore, in this article I will refer to nothing other than a FICO score.
Why can you have your credit pulled by two different companies on the SAME Day and have different scores?
As stated above, there are three credit bureaus, Experian, Equifax and TransUnion. FICO scores have many different editions, versions, and variations. On a single day, a consumer could theoretically have dozens of different FICO scores, depending on which version and credit agency is used to produce the score. In addition, there are hundreds of consumer reporting companies that collect that data and transpose it into their own unique report. Not every consumer reporting company will have information on every consumer. A consumer with limited and/or out-of-date credit histories may not have enough information for credit reporting companies to have reports about them depending on how far back they collect data.
The FICO scoring model with its familiar range of 300 to 850 was first introduced in 1989. Since then, FICO has released five major revisions: 1995, 1998, 2004, 2008, and 2014. Each "edition" uses a different formula and produces a different score.
When a new FICO edition is released, many lenders continue using an older version for years before "upgrading." The 1995 revision is no longer in common use, but later editions are still used by lenders.
Consumer reporting agencies also specialize in collecting different industry information. Some of these specialties include:
Employment screening providing verification information such as credit history, employment, salary, and education and professional license verification to employers and others.
Tenant screening for background screening services for landlords about landlord-tenant actions (such as prior evictions), address history, public background check (to identify prior criminal and court judgments, including prior prison sentences, presence on government-managed sex offender and known terrorist databases).
Banks and credit unions use check and bank screening reports to help decide whether to offer you a checking account or to cash a check.
If you have ever received a quote from an insurance agent but ended up with a different quote after they have done some research, you may be familiar with a “LexisNexis C.L.U.E. (Comprehensive Loss Underwriting Exchange)” report. It collects and reports up to seven years of auto and personal property claims respectively like claim information such as date of loss, type of loss and amounts paid, and property information. And the list goes on. (Comprehensive list found here).
~ Article by Todd Gehrke.
Todd Gehrke is a published author, public speaker & a Sr. Loan Officer with New American Funding in Greenwood Village. He can be reached at firstname.lastname@example.org or (720) 608-0013.