Multiple Credit Inquiries

How Multiple Credit Inquiries Affects The Mortgage Process

Gustan Cho Associates are mortgage brokers licensed in 48 states

This guide covers how multiple credit inquiries affect the mortgage process for borrowers.  The potential creditor will pull credit whenever consumers apply for credit, such as a credit card, auto loan, installment loan, payday loan, or mortgage loan. The result is that consumers will have credit inquiries on their credit reports.  Consumers should at all costs avoid multiple credit inquiries during the mortgage process.

Credit inquiries cannot be avoided. It is part of life for consumers. Credit inquiries negatively affect credit scores. Each hard pull credit inquiry can drop credit scores between 2 to 5 points.

Plus, credit inquiries stay on the credit report for two years. Every creditor who pulls credit will see all the inquiries in the past two years. In the following paragraphs, we will discuss the negative impacts of multiple credit inquiries during the loan process in getting a mortgage loan approval.

Multiple Credit Inquiries Reflected on Credit Report

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Every lender must pull a credit report when consumers shop for a mortgage. Each mortgage lender pulls credit on their credit. When reviewing the credit report, lenders will see all credit inquiries. However, lenders will not view credit inquiries on a credit report from mortgage companies as negatives.. Credit inquiries by mortgage companies within 60 days will not hit scores. Most lenders will realize consumers are shopping for a mortgage and realize that credit pulls quickly because mortgage companies are pulling credit.

Multiple Credit Inquiries Will Hurt Credit Scores

Before consumers have mortgage companies pull credit, make sure proper due diligence is done on the lender. Find out what types of overlays they have before authorizing to pull credit. Even though lenders understand credit inquiries pulled by several mortgage companies, having credit pulled by more than five or more lenders may set off a red flag.

If you are shopping for a mortgage, getting multiple credit inquires from several lenders may not hurt your credit scores but it will raise a red flag to lenders. Mortgage Underwriters want a letter of explanation for every credit inquiry on your credit report.

Another important thing to realize is that each hard credit pull will drop credit scores by 2 to 5 points. Multiple credit checks may drop credit scores where consumers no longer qualify for a particular mortgage loan program. For borrowers with low credit scores or marginal credit scores, they should not have any more than three lenders pull credit.

How Do Underwriters View Credit InquiriesHow Do Underwriters View Credit Inquiries

Whenever a mortgage underwriter sees consumers with credit inquiries in the past year, they will require a letter of explanation for each inquiry. It does not have to be a long letter of explanation. It can just be a statement or two. For example, the case scenario had credit inquiries from mortgage companies. All letter of explanation needs to state that we were shopping for automobile and auto finance lenders. Shopping for better rates on an auto loan. With credit card companies, credit inquiries from credit card companies. 

The borrower needs to state in a letter of explanation shopping for a mortgage that is the reason for credit inquiries from several mortgage companies. The same goes for auto loans. Suppose consumers have several inquiries from car dealerships or auto finance companies.

Need to state shopping for the best credit card interest rates. Need to explain the outcome of the inquiry. If approved, then state how much of the limit approval. Lenders do not view credit card credit inquiries favorably. This is because they might think consumers might be financially strapped. That is why consumers are applying for additional credit.

One Credit Application Can Result In Multiple Credit Inquiries

One credit application can and oftentimes does result in multiple credit inquiries. This will have a severe negative impact on credit scores and credit reports. For example, going to an auto dealership shopping for a car. Qualifying for an automobile loan.  Complete an auto loan application with the car dealer. The car dealer first runs a credit report.

The car dealer may forward a credit report to an auto finance company. But many auto finance companies prefer to run their separate credit report, which is now another credit inquiry on the credit report.

If denied by one auto finance company, a car dealer may submit an automobile application to multiple auto finance companies. They all run a hard credit pull which will drop credit scores. A bunch of credit inquiries will show up on the credit report. Ask who the creditor is or the company pulling credit from and how many times it will be pulled. Mortgage borrowers should refrain from applying for new credit during the mortgage process.

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