Credit Scores and Inquiries

Inquiries Effect on Credit Scoring

 

Many people have heard before that inquiries lower the score.  As a result many customers will ask you whether this is true or just a myth.  Inquiries definitely impact the consumer credit score.



FICO score inquiries account for 10% of the total credit score.  FICO counts this to the part of their score that deals with the accumulation of new debt.



If consumers apply for a lot of credit within a short period of time, their scores will go down.  There is no set amount of drop per inquiry - it's bundles of inquiries in a short period of time that really impact the score, not just one single inquiry.

This means that when a customer applies for something and an inquiry is put on their report, their score might not go down at all.  But if they start applying for a lot of new credit in a short period of time, these groupings of inquiries will have an impact on their score.



However, there are exceptions: mortgage or auto loans.  If they go to apply for a mortgage, all mortgage inquiries within a 2 week time period only count as 1 inquiry on their credit report. The same applies for auto loan inquiries.



The reason for this, is that the score providers understand that consumers will commonly shop around for the best terms on home and auto loans, and they shouldn’t be punished for doing this. Plus, in the auto business, it is common for the consumer’s application to be sent to many different banks, which could also lower their scores, if FICO didn’t operate this way.



Accumulation of new credit or new inquiries on the report, accounts for 10% of the total credit score,  Insure your clients know about this, so they can minimize the amount of inquiries they put on their report further maximizing their scores.



For more details about your credit score and to learn ways to improve your credit status, please contact a representative at Precision Credit Restoration at 877-292-0656.  We are here to guide you from financial distress to financial success.  

What Should Potential Home Buyers and Those Refinancing Know About Credit Scores

When a third party pulls a copy of an individual’s credit profile and scores a “hard inquiry” occurs.  This credit review can have a negative consequence to your scores.  Do not have your credit pulled by any third party unless there is a very good reason for it like a pre-approval letter.  There are windows of time that a series of “hard inquiries” for the purpose of a mortgage will hurt your scores less (usually within 45 days) but what is essential to remember is more than 5 third party inquiries for any purpose can drop scores dramatically depending on the individual’s full credit profile. “Hard inquiries” impact credit scores for one year and stay on credit reports for two.

When you pull your own credit online it will not impact your credit scores. However, the scores that are available online to purchase are usually not the same as the scores used by mortgage lenders.

Most mortgage lenders use the “middle score” as the risk factor. When a report is pulled by a lender it includes merged information from the three credit bureaus Experian, Trans Union, and Equifax. Each bureau has a FICO score that represents the risk of the borrower. The bank takes the middle number not the average.

The score model used by most mortgage lenders has customized versions for each bureau therefore each bureau has created their own name for the version they use. They are:  FICO 4 (used by Trans Union), Beacon 5.0 (used by Equifax), and Fair Isaac Risk Model V2 (used by Experian). We refer to these as FICO 4 for an abbreviation.  All of these scores are very similar but they have small variations.  Lenders tend to follow the score models used by Fannie Mae and Freddie Mac. These scores are currently FICO 4 models and will not be changing any time soon.

The scores sold at the consumer site www.myfico.com are FICO 8 score models and will be changing to FICO 9 sometime this fall.  This will cause confusion and larger score differences between the consumer FICO scores and the mortgage banking FICO scores. 

If your team would like more info on the details of the differences between the FICO 4 model lenders use and the FICO 8/9 model sold to consumers, plus how to handle questions and concerns of loan applicants, referral sources, and potential home buyers please reach out to us and we will set up a meeting to educate and discuss (stephanie@precisioncreditrestoration.com).

Besides the differences in FICO score models there are also many scores sold online that are not FICO scores at all.

Some of these scores are:

●National Equivalency Score: sold by Experian and it ranges from 360-840 points.

●​Vantage 2.0 Score: created by all three credit bureaus and it ranges from a 501- 990 score with letter grades A-F.

●​Vantage 3.0 Score: a newer version which ranges from a 300-850 like the consumer FICO score. Although it is the same range as most FICO scores it is not the same.

●​Plus score: sold by the bureaus, it ranges from a 330-830 score and is strictly educational.

●​Equifax score: sold and created by Equifax and it ranges from a 280-850 score. It is sold for educational purposes.

●​Trans Union scores: they range from 300-850 points and are also sold for educational purposes.

The best way to find out what the FICO score used by a banker is would be to have a banker pull credit for pre-approval. 

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​Feel free to reach out to us at 877-292-0656 if you have any credit questions or reports you would like reviewed!

"Guiding you from financial distress to financial success"

How to prepare our future for financial success?

How should we be preparing our future Millennial clients for successful real estate purchases and financing approvals?

Millennials (those under the age of 34) make up many of our current and potential home buyers/financing applicants.  With this in mind it is of great value for us all to learn more about their attitudes about homeownership and future investments and how we can help prepare them for success. Here are some trends among Millennials: -The National Association of Realtors Trend Study of 2014 found “8 out of 10 recent buyers considered their home purchase a good financial investment, ranging from 87 percent for buyers age 33 and younger, to 74 percent for buyers 68 and older.” -Lawrence Yun, the Chief Economist and Senior Vice President of Research at the National Association of Realtors, said the Millennial generation, which is under the age of 34, is now entering the peak period in which people typically buy a first home. “Given that Millennials are the largest generation in history after the baby boomers, it means there is a potential for strong underlying demand. Moreover, their aspiration and the long-term investment aspect to owning a home remain solid among young people,” he said.  “However, the challenges of tight credit, limited inventory, eroding affordability and high debt loads have limited the capacity of young people to own.” -Although Millennials have a much greater talent for navigating technology and social media, they are far from educated about credit and scoring.  The Fourth Annual Credit Score Knowledge Survey done by the Consumer Federation of America found that this generation falls short in credit knowledge.  About half of Millennials surveyed never pulled a copy of their free annual credit reports whereas with older adults, about 80% use free annual reports to view and learn about their credit.   When individuals are unaware of what is on their credit profile it is less likely they will have a curiosity about how credit works.  Many Millennials do not even know what kind of information is posted on credit profiles or how scores are tabulated. How can we help these individuals & gain referrals? We can send information relating to Millennials to our referral sources as well as our current, potential, and past clients.  This information will be really valuable to Millennials and also help us gain them as loyal customers in the future. For referral sources, they will appreciate good quality info that they can use to enhance their reputation and gain referrals and trust.  In addition, our current customer base will appreciate our interest in helping those they care for, which will give us an opportunity to expand our business and build a great reputation. Here are tips on credit and scoring to share with Millennials: -Order your free Experian, Trans Union, & Equifax credit reports once a year at www.annualcreditreport.com and learn about what is on your credit reports. -If you purchase the scores offered on the annual site understand they differ from FICO scores.  FICO scores are the scores used by most lenders to evaluate a borrower’s ability to pay back loans. -FICO scores can be purchased at www.myfico.com. -Paying a credit card, car loan/lease, student loan, store card, mortgage, or overdraft protection late can drop credit scores hundreds of points no matter how small the amount owed is. -Starting to build credit at a young age can add many points to your scores as the credit ages. -FICO scores over a 680 could save many mortgage applicants $100,000 or more over the life of a mortgage loan depending on the size and type of mortgage.  A 740 FICO score and above is considered excellent credit. -Credit scores take time to build and improve so starting early is extremely important. -Co-signing or signing for a friend or loved one’s cell phone, credit card, lease or loan can extremely damage credit scores for years to come and alter your ability to get loan approvals. If you have no control over paying the bill or are not comfortable paying the debt if it defaults do not sign up for it.  -Being added on as an authorized user to a parent or trusted friends old credit card with an excellent payment history can add points to scores since it increases the average age of credit.  Beware of being added on to maxed out cards. ​ Feel free to reach out to us at 877-292-0656 f you have any credit questions or reports you would like reviewed!