“Don’t let anyone run your credit each inquiry hurts your credit score!!” You hear it all the time. Well if you’re looking for a mortgage how can you possibly shop for a loan if you can’t run your credit again???
Credit inquiries are 10% of overall credit score, and it’s the least understood of all credit scoring factors. There are actually 5 different categories that affect your credit score and they are as follows:
Credit History- Do you pay on time- 35%
Credit Balances vs available credit- 30%
Length/Depth of credit history- 15%
Type of credit- Revolving, Installment,
Mortgage, etc. 10%
Credit Inquiries 10%
Many loan officers, lenders, brokers use credit inquiries to scare borrowers from shopping for their mortgage. It’s a scare tactic, and what they’ll say is “don’t let anybody else run your credit, it’ll hurt your score”, and that’s partially true but there are a few details that they leave out.
For starters inquiries could affect your score from 2 points per inquiry to 25 points per inquiry. The maximum number of inquiries you can have that will affect your credit score in any six month period is ten. So if you have ten inquiries in a ten month period, go to town, at that point you can have eleven, twelve or even one hundred inquiries it doesn’t matter it won’t effect your score at all after ten.
Now, here’s the big one, mortgage and auto loan inquiries are completely different than credit card inquiries. When you want to shop for a mortgage or a car loan, you want to make sure you get the best loan for your personal needs. The problem is, any reputable mortgage professional needs to run your credit to present a loan offer in writing. If you can’t get a loan offer in writing then it’s not worth paper it’s not written on.
So, to actually get an offer in writing to you a loan officer needs to have your credit run. The credit score is only part of the picture, a whole credit history and picture is needed. So how can you look around for a mortgage if every inquiry affects your score? You probably can’t. Well, here’s the part that probably 99% of the loan officers out there don’t know. There’s what I like to call a 14-day rule. The 14-day rule says you can have an unlimited number of mortgage inquiries in 14 days and it counts as one inquiry. That’s right, unlimited. So for example, you’re looking around for a mortgage, you decide go to fifty different mortgage companies. I’m not saying you should do that but, if you decided “I want to shop fifty mortgage companies” and you had fifty different mortgage companies run your credit. If they ran your credit in 14 days, that’s one inquiry and that affects your score as one inquiry. If it happens to take you 28 days to shop 50 mortgage companies, which I would think it might take longer than that, but assuming that you can go out and get 50 lenders to run your credit and do whatever it is that needs to be done in 28 days, that will count as two inquiries. Again, this is really the most absolute misunderstood of all the factors in overall credit scoring.
Banks, brokers and loan officers all use inquiries to scare you from shopping for a loan, but they themselves don’t even know the rules of how inquiries work. I’m not saying that shopping around is the smartest thing to do, you really need to work with a professional mortgage planner. Certainly, if you’re going to shop around know the rules and make sure that whatever you do you get it in writing, you need to get a Good Faith Estimate. You can’t get that without a loan officer running your credit. So when a loan officer, a bank, or broker says don’t let anybody run your credit it’s going to hurt your score, you could answer, you know what, that’s true but I know the 14-day rule. I guarantee you whoever you’re speaking to says, “What 14-day rule?” Again, remember, you can have an unlimited number of inquiries for a mortgage loan in 14 days and it counts as one starting from the first inquiry.
Posted in Mortgages | 
Tags: Auto Loan, Borrowers, Car Loan, Credit Balances, Credit History, Credit Scoring, Loan Officer, Shopping