Multiple Credit Inquiries
By Gustan Cho
Whenever you apply for credit such as a credit card, auto loan, installment loan, pay day loan, or mortgage loan, your potential creditor will pull credit on you and the end result is that you will have credit inquiries on your credit report. Multiple credit inquiries cannot be avoided. It is part of life for consumers. Multiple credit inquiries affect your credit scores in a negative way. Each hard pull credit inquiry can drop your credit scores between 2 to 5 FICO points. Plus credit inquiries stay on your credit report for two years. Every creditor that pulls your credit report will see all of the credit inquiries that have not been deleted off your credit report.
Multiple Credit Inquiries During The Mortgage Application Process
When you shop for a mortgage loan, every mortgage lender who you shop for mortgage rates will need to pull your credit report. Each mortgage lender that pulls your credit will see all of the credit inquiries that is reflected on your credit report. However, mortgage lenders will not view credit inquiries that are on your credit report from mortgage companies as long as it is within a 60 days window period of time. Most mortgage lenders will realize that you are shopping for a mortgage loan and realize that multiple credit pulls during a short period of time is due to the fact that mortgage companies are pulling your credit.
Multiple Credit Inquiries Will Hurt Credit Scores
Before you have a mortgage company pull your credit, make sure that you qualify for the particular mortgage program with the mortgage lender that will be pulling your credit. Even though mortgage lenders understand multiple credit inquiries pulled by several mortgage companies, having your credit pulled by more than 5 different mortgage lenders may set off a red flag. Another important thing you need to realize is that each hard credit pull will drop your credit scores by 2 to 5 FICO points and having multiple credit checks may end up dropping your credit scores where you no longer qualify for a particular mortgage loan program. For mortgage loan applicants with low credit scores or marginal credit scores, you should not have no more than 3 mortgage lender pull your credit.
How Do Mortgage Underwriters View Multiple Credit Inquiries
Whenever a mortgage underwriter sees that you have had credit inquiries in the past year, they will require a letter of explanation for each of the credit inquiry. It does not have to be a long letter of explanation. It can just be a statement or two. For example, if you had multiple credit inquiries from mortgage companies, all you need to state on your letter of explanation is that you were shopping for a mortgage and that is why you had credit inquiries from several mortgage companies. Same goes with auto loans. If you have several inquiries from car dealerships and/or auto finance companies, all your letter of explanation needs to state is that your were shopping for an automobile and auto finance lenders. With credit card companies, if you had multiple credit inquiries from credit card companies, you need to state that you were shopping for the best credit card interest rates and not to expand your credit limit by getting a bunch of credit cards. Mortgage lenders do not view credit card credit inquiries favorably because they might think you might be financially strapped and that is why you are applying for additional credit.
One Credit Application Can Result In Multiple Credit Inquiries
One credit application can and often times does result in multiple credit inquiries which will definitely have a severe negative impact on your credit scores and credit report. For example, if you go to an auto dealership and want to shop for a car and see if you can qualify for an automobile loan, you complete an auto loan application with the car dealer. Your car dealer first runs your credit report. Your car dealer may forward your credit report to an auto finance company but many auto finance companies prefer to run their own separate credit report which is now another credit inquiry on your credit report. If you get denied from that one auto finance company, your car dealer may submit your automobile application to multiple auto finance companies and they all run a hard credit pull on you which will drop your credit scores and a bunch of credit inquiries will show up on your credit report. Ask whoever your creditor is or company that is pulling your credit who will be pulling your credit report and how many times it will be pulled.