(TheNicheReport) -- Credit lending guidelines and requirements for mortgage applicants have become stricter than ever, and they are often cited as the number one reason the American real estate and home lending market fails to lift the economy as desired. Mortgage underwriters considered credit scoring as being one of the main qualifying factors for refinance or home purchase applications, even in cases where loan-to-value (LTV) ratios are at 50 percent.
Credit scores are often referred to in the mortgage industry as your FICO score. This is a misnomer, since it is a shortened portmanteau of Fair, Isaac and Company, one of the first credit scoring companies. A more accurate term, which is also used by loan officers and underwriters, is tri-merge. Modern loan origination and underwriting software takes the credit reports of all three credit reporting bureaus: Equifax, Experian and TransUnion. The score resulting from the merging of these bureaus is often called a FICO score.
FICO scores are subject to speculation and false impression. One of these misconceptions is centered on the number of inquiries by loan applicants. The common belief is that the credit bureaus will lower their risk-based scoring when a consumer shops around for mortgages or other types of consumer loans. There is a certain amount of truth behind this assumption, but it is often misinterpreted.
Credit inquiries that are performed within a 30-period will not affect FICO scoring. This goes for all inquiries, not just those made for mortgages. A borrower can go shopping for the best rates within the span of two weeks, for example, without having to worry about a lower FICO score. After 45 days, however, the credit inquiries made in each category will have an effect on the score. All mortgage applications will be considered one inquiry, and all applications made towards the purchase or refinance of an auto loan will count as a different inquiry.
The impact of credit inquiries on FICO score is typically less than five points per application, and consumers can see this impact if they check their credit scores after 45 days of the action. For this reason, mortgage processors and underwriters often try to get all their credit scoring done on an application within 45 days of pre-approval. While credit reporting agencies will always give more importance to other factors -such as timely bill payments- when calculating scores, consumers should try to accomplish their mortgage rate shopping within 30 days.
