Credit Inquiry
Most of us know that a credit inquiry has an affect on our overall score. There is a lot of misunderstanding about how they can affect your score. The easy answer is that it is the frequency and proximity of inquiries that has the greatest effect. Basically, the more you have your credit pulled and the closer together those pulls are, the more it will affect your score. However, this all depends on the individual and their credit history. Let’s take a look at some of the big questions regarding a credit inquiry.
How many points does a credit inquiry make you lose?
You all know this person, and if you don’t it’s probably because it’s you. Every store card possible comes flying out when they open up their wallet. This is all due to that delightful store clerk asking them at every store if they want that tremendous 20% off today’s purchases by applying for their store card.
Other than having too many revolving accounts, these types of individuals are also being crippled with “too many inquiries” (as indicated on your credit report).
How many is too many?
Here is the reality. The impact from applying for this card – or anytime you are applying for debt – will fluctuate from person to person based on their unique report and history. A single credit inquiry can be big, typically ranging from 2-5 points lost, or one percent of your score. This can really add up over the year. Fair Isaac Corporation’s algorithms will view someone as a greater risk when they see them applying for multiple new credit lines in a short period of time. Think about it; if you have someone applying for a mortgage, car loan and credit card all in the same week they have a much better chance of overextending themselves than someone that pulls their credit once every six months.
- Statistically, people with six inquiries or more on their credit report in the last 12 months are up to eight times more likely to declare bankruptcy than someone without any inquires at all.
- Let’s not forget what a credit score is. It’s a tool invented to make people pay their bills on time and assess their risk. So the more bills you have to worry about each month, the greater the risk you are going to miss one. Something to think about the next time you are tempted to save that 20% while at the mall, or when that new-car smell starts becoming really appealing.
What is the difference between a “hard pull” and a “soft pull”?
You may have heard of hard pulls and soft pulls, but what is the difference?
Hard inquiries occur only when “you are applying for more debt.” Soft Inquires, on the other hand, are all other inquiries. Can you guess where the largest quantity of soft inquiries comes from? Surprisingly, they come from your current creditors performing routine checkups. You may not know this because it’s in the minute writing you didn’t read when signing your contract with them. Your creditors frequently pull your credit for continued risk assessment; this way, they know if they should offer you a credit limit increase, slap you with a credit limit decrease, or if things look really grim, just end your shopping spree altogether with a closed account. Another popular soft inquiry that will appear is when you check your credit report online. A soft inquiry will not cause a point deduction on your credit report.
A hard inquiry on the other hand is going to occur when you apply for anything from a gas card to a mortgage loan. Additionally, if you apply to have your limit increased on your credit card, that would be “hard” versus your creditor doing it on their own accord.
When qualifying for a mortgage, every point counts, especially the 2-5 point deductions that the average hard inquiry creates. In most situations, these inquiries are right in our wheelhouse, as they are rarely performed according to the letter of the law. Be sure to contact Doug Haldeman at dhaldeman@cornerstonemortgage.com or you can text or call 314.472.3684.
What are Shopping Windows?
One of the largest myths that a credit restoration firm has to contend with is the myth of credit inquiry shopping windows. First of all, a shopping window for inquiries allows one to shop for a certain product over a certain timeframe in the same industry with the ending result equating to one inquiry. This allows a smart consumer to look around for the best deal and not to have to contend with dozens of new inquiries.
Of course whenever there is anything that is smart on the consumer’s end the “powers to be” seem to have a different agenda. So here starts the rumor mill; how many days, weeks, or months do these “so called” shopping windows last? See, this is where the trick comes in the play. Whatever timeframe you just answered is wrong. The real question is which scoring calculation or algorithm even allows shopping windows to begin with?
Nearly all commonly used scoring models have zero allowances for shopping windows at all. The only shopping window scoring model that has any relevance today is the Classic 04 model, which gives you 14 days and is only one of the three algorithms used when pulling a full tri-merge credit report.
This can all be confusing information it’s ok you are not alone. Reach out to Doug Haldeman and his mortgage team today and they will help you understand your credit score and assist you in getting a game plan together.
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