We all know that several inquiries for new credit will lower a credit score. But do several inquiries for the same financial product have a similar effect to many inquiries for different products?
This is another question we received previously when we held our "Ask The Consumer Credit Attorney" webinar through OriginationPro's Certified Mortgage Advisor Program. This webinar featured guest speaker Bob Willis, attorney and founder of Credit Repair Resources. The question is: does shopping for a home loan lower a credit score?
While several inquiries for new credit will certainly have at least a slightly negative impact on one's score, multiple inquiries for the same type of credit during a short period of time is not the same as applying for a car loan, a home loan and several credit cards. Credit score models are programed to recognize that someone who has several inquiries for a home loan with different lenders during a short window of time, would indicate that the consumer is shopping for one home loan, not several. While the systems are not perfect, this is generally the way they work.
Also, keep in mind that the effect of a single inquiry is minor. It is not going to affect the rate someone receives from a lender if they have a very high score. But if someone's score is borderline, they should be very careful with regard to inquiring about other credit when shopping for a home loan. In addition, if their debt ratios are high and it looks like the client is shopping for new credit, underwriters may be concerned as well.
--Dave Hershman
Dave Hershman has been the leading author and a top speaker for the industry for decades with six books authored and hundreds of articles published. His website is www.originationpro.com. If you have a reaction to this commentary or another question you would like answered in this column? Email Dave directly at [email protected].
