Mortgage Inquiries and Your Credit Score

The excellent Credit Sesame puts together a concise answer to one of the most frequent questions I get asked: "Will running my credit hurt my score?".  The short answer is "no", as outlined below:

1. Inquiries are all specifically coded by the credit bureaus to reflect the industry from which they came. That means if you apply for a mortgage, auto loan, credit card, personal loan, student loan, or any other type of loan the inquiry will likely clearly indicate the specific type of credit you’ve applied for. This is important because the type of inquiry plays a key role in how it’s evaluated.

2. Mortgage, auto and student loan inquiries are treated differently from all other inquiry types. If you don’t already know, these are the types of loan where you can shop around for the best interest rates and terms. As such, searching for any one of these loans can result on many lenders pulling your credit reports and scores. As such, your credit reports could get loaded up with multiple credit inquiries in a very short period of time because of your rate shopping activities.

3. FICO doesn’t want to penalize smart consumers for rate shopping, which is something we all should do when looking for funding for major purchases, like mortgages.  So, rather than assume each inquiry indicates a discreet and unique credit application, they built logic in their credit scoring model that identifies when you’re shopping for one loan rather than many loans.

Here’s how it works:

Mortgage related inquiries, which are very easy to identify because of #1 above, are ignored for the first 30 days they’re on your credit reports. So, if you apply for a mortgage loan on Jan 15^th it’ll take until Feb 15^th for that inquiry to become “visible” to the FICO score. That means you can apply for mortgage loans with 100 different lenders over a 30-day period and all 100 of those inquiries will be ignored.  That means they’ll have absolutely no impact on your FICO scores.

They go on to say that even if you go up to 45 days between the initial mortgage credit inquiry and the final inquiry, the bureaus will only count them as 1 inquiry instead of ignoring them altogether.  

If you have any other questions about credit or lending, please feel fee to contact me anytime!