Credit Inquiries By Mortgage Lenders And Impact On Credit Scores

ByGustan Cho
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This BLOG On Credit Inquiries By Mortgage Lenders And Impact On Credit Scores Was Updated And PUBLISHED On February 21st, 2020 Consumer’s Credit Profile is private and not available to the public.

  • There are federal laws regulating personal credit reports
  • The Fair Credit Reporting Act (FCRA) is the federal government agency that monitors and regulates who can specifically see a consumer’s credit profile
  • Creditors must have a “legitimate business need,” and a “permissible purpose,” as stated in the federal law to obtain a consumer credit report from credit inquiries
  • The only way creditors can pull credit on consumers is by getting permission by the consumer and authorization to pull credit
  • Only after the creditor has written permission and authorization do creditors have the authority and access to consumer credit reports
  • Other folks such as neighbors, friends, co-workers, and even family members cannot have access to credit inquiries to credit profile

This holds true unless the main person whose credit is being pulled authorizes the credit inquiry authorization.

Companies Running Credit Inquiries

Here are businesses and institutions who can run credit inquiries:

  • Credit Grantors such as lenders, auto finance companies, credit card companies, student loan providers, and other creditors
  • Collection Agencies
  • Insurance Companies
  • Employers

Any company that receives a copy of consumer credit profile will be listed under the “Credit Inquiry” section of credit report.

  • A “credit inquiry” is a listing of the name of a credit grantor or authorized user who has accessed credit file
  • Credit grantors post a credit inquiry before offering you a pre-approved credit card application
  • These are listed as “promotional” credit inquiry on credit file because only your name and address were accessed, not your credit history information
  • They are NOT sent to credit grantors or businesses for reasons of credit reporting
  • They are listed for your informational purposes only

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) is the federal law regulating credit reporting companies

  • Equifax
  • Experian
  • TransUnion

It has been in effect since 1971 and undergoes periodic revisions by the Federal Trade Commission.

  • This law protects consumers rights such as the right to review and contest information in their credit profiles

It also specifically defines who can access the information in a credit profile and how you are notified of this activity.

Avoid Multiple Credit Inquiry

Credit Inquiry can have a negative impact on consumer credit scores initially:

  • Every time you apply for credit, a creditor will run a hard credit inquiry.
  • A hard credit inquiry can lower FICO credit scores between 2 to 5 points
  • Plus every credit inquiry on credit report will stay on credit report for at least two years or longer
  • Multiple credit inquiries will lower credit score and will not look good on credit report
  • Creditors will look twice at granting credit on a loan applicant who has multiple credit inquiries
  • Creditors may be concerned why the loan applicant is applying for multiple credit in a short period of time  

Lenders will want letters of explanation for every credit inquiry that is reported on a credit report.

Impact Of Multiple Credit Inquiries By Lenders

We get so many mortgage applicants who are paranoid about pulling credit.

  • They are afraid that every time a lender will pull credit their credit scores will drop
  • This is partially true
  • The first couple of times a lender pulls credit, it will drop
  • However, after three or more credit pulls by lenders will not affect consumer credit scores
  • This is because credit bureaus realize that consumers are shopping for a mortgage
  • So if a consumer has 10 different lenders pull hard credit inquiries within a 90 days window, it will not affect their credit scores

However, if consumers have 10 different creditors from different fields such as auto, department store, credit cards, computer store pull credit, it will drop credit scores.

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