Way too much concern over credit inquiries

Our friend Jay Vorhees at JVM Lending put forth a good blog recently about credit inquiries. As a member of USAA and Capitol One, I get free credit monitoring, which is a super helpful tool. Read on for more:

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Over 500 borrowers come to JVM every month seeking mortgages. And way too many of them are far too concerned about credit inquiries. It is our strongest borrowers who are often the most concerned, which is ironic because they are the least affected by credit inquiries, but also why they have high credit scores.

This is because credit inquiries only affect a strong borrower’s credit score by a few points at most. And even that impact disappears after a few months. It is true that “hard inquiries” remain on a credit report for a few years, but they stop impacting credit scores long before they drop off a credit report.

Further, the credit bureaus or scoring models treat multiple inquiries from different mortgage lenders over a 30-day period as a single inquiry. It is only when borrowers apply for a large number of credit cards or apply for a large amount of credit from different types of credit providers over a short period of time that the scoring models become concerned.

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A single inquiry from one mortgage provider will hardly impact a strong borrower’s credit at all. And even if it does, the impact will only be a few points and it will disappear in a few months.

For readers who would like to learn more, Credit Karma has a more detailed discussion about credit inquiries here. As an aside, I also recommend signing up for the Credit Karma App. It is a great way to keep tabs on your credit and credit score. Or, like me open a Capitol One Credit Card (as long as you don’t have too many credit cards already and then you will be able to keep tabs on your credit scores for FREE!

Two Notes:

  1. Your scores from these reports are usually a bit different than the way a lender will see your scores. I recently had a client work to build up his credit to 705, but when they ran his credit for a loan it was in the high $600s.
  2. My girlfriend just went in with her son on an investment property where he will be living in it and they have roommates who will be paying rent (my youngest is one of the renters). She called me to inquire about going FHA as her lender recommended. I was very surprised because she was putting more than 20% down. I told her she shouldn’t be going FHA. Come to find out her son had no credit and thus he had a very low credit score and a lender will always take the lowest of two credit scores. Make sure your kids start to establish credit by having a gas card or a credit card that they pay on time.