When you apply for a loan of any type and the company checks your credit to determine approval for that loan, you will get an Inquiry on your credit report.   When the consumer initiates the application it is considered a Hard Inquiry and will be counted in the New Credit part your score. 

A Soft Inquiry will show up on your credit report, however it does not count against your score.  These include any time you check your own credit reports, either with your no-cost ones or by purchasing them.  If companies you already have accounts with do periodic checking of your credit reports, it won't count against you.  And if an prospective employer checks your credit, it is a Soft Inquiry.

Okay, so what about people who are applying for a mortgage to take advantage of the housing market and government incentives? 

RATE SHOPPING
The FICO formula recognizes that most people will do some form of rate shopping for a major purchase.  Even if the consumer doesn't shop around, most lenders send out the application to get multiple choices of loan approvals for their customer.

The FICO scoring formula will count all MORTGAGE, AUTO, and STUDENT LOAN applications within a 14 day period as ONE inquiry against the score. 

This means that all mortgage inquiries in a two-week period will all show up on the credit report.  However, they will only count as ONE hit, one inquiry, for scoring purposes. 

Additionally, the FICO scoring formula will ignore all mortgage, auto and student loan inquiries in the past 30 days.  So if your credit is pulled today, June 24th, any inquiries for mortgage, auto and student loans since May 24th will NOT be included in the scoring process.

WHAT TO DO
Notify your lender that you are only authorizing them to check your credit for 14 days.  You may want to put it in writing, from June 24th until July 7th you authorize ABC Lending to check your credit for loan approval.  That way, any inquiries that may show up after that 14 day period from ABC can be disputed and most likely removed from your credit file.

It is important to note that most real estate transactions are currently taking more than 30 days to process.  And the lender will probably have to check the loan applicant's credit one more time right before closing and final loan approval.  It will start a new 14 day period, even though it is the same company that checked it at the beginning of the loan process.  It won't be included against the score that day because the score ignores mortgage inquiries in the past 30 days.

This is where having the original loan applications all done in that first two week time frame can help, as you will only have ONE hit on the score, rather than several over the past 6-8 weeks.

NOTE:  The newer FICO scoring formula allows a 45 day period for mortgage, auto and student loan shopping, rather than the 14 day time period noted above.  Because we do not know how many lenders have paid to upgrade to the newest version, we recommend using the 14 day guideline to protect yourself.

For a Credit Check-Up before going to your lender, contact us today.  Correcting your credit report and optimizing your credit scores, along with learning the credit do's and don'ts while in the home buying process, before going in to your lender can make the difference between getting approved or denied as well as obtaining the best interest rate possible.