A credit inquiry is logged when someone, either an individual or a business, requests the credit history from one of the three main credit repositories of Equifax, Experian and TransUnion. Credit inquiries are also play a part when calculating a credit score.
But there can be concerns when there are several inquiries within a short period of time but at other times these additional inquiries don’t have an impact, even when applying for a mortgage.
There are two basic types of inquiries, a soft inquiry and a hard inquiry.
A soft inquiry is certainly a request to review credit but it’s one that is made by a third party prior to offering someone the opportunity to apply for credit. When someone receives a solicitation in the mail from a credit card company, the company previously took a quick look at a credit report to see if that person is eligible to apply.
A soft inquiry can also come from a potential employer. A soft inquiry isn’t associated with a direct request for a credit account. Consumers who get a free copy of their credit report each year, that’s considered a soft inquiry. A soft inquiry will have no affect on a credit score.
A hard inquiry on the other hand will impact a score. A single request for credit won’t hit credit scores hardly at all, especially if the request is an isolated one. But what does affect scores as it relates to inquiries is when multiple requests for credit within a shortened period of time and for different types of credit.
For instance, someone applies for three revolving credit cards at the same time in addition to a department store card. Credit score algorithms see this as a red flag as it could indicate the individual is soon heading into some financial worries and is looking to establish some new credit lines to help ward off any potential money problems. That’s when multiple inquiries matter.
Consumers however can be confused regarding multiple inquiries. After a little online research, they can read up on what improves and harms credit scores, and multiple credit inquiries are one of the bad ones. But that’s not necessarily the case as it relates to home loans.
Let’s say someone has applied for a mortgage. But after two weeks the applicant hasn’t heard from the loan officer. No correspondence, no return phone calls, just a lot of unanswered voice mails. Thinking that applying for a mortgage with another company would trigger another hard inquiry, the applicant just sits tight and prays the loan will go through and close on time. However, that doesn’t have to be the case.
The Consumer Financial Protection Bureau, or CFPB, has established guidelines as it relates to credit inquiries. With a mortgage, a consumer can in fact apply with a new lender and have a new credit report pulled with no effect on scores whatsoever. How? The rules state as long as the inquiry is made for the same purpose (buying a home or refinancing a mortgage) and made with a 45 day period, the additional inquiry is benign. There is only an issue if an application was made, the loan not closed and applying again four or five months later. But if a new request for a mortgage is made within that 45 day window, no harm and no foul.