This topic has caused much confusion for both professionals and consumers. Professionals hire pulling services to gain access to merged credit reports. These reports show a credit history from each of the three credit bureaus and three fico scores that indicate the level of risk as determined by each of the three bureaus. Most lenders take the middle of these three scores, and use it to define applicants' ability to get approval for a loan and the interest rate that will apply. Each credit review is considered a hard pull, also called an inquiry. Hard pulls can drop credit scores two to five points each. An inquiry "window" is the time allotted for a consumer to shop for a loan without their credit score dropping with each inquiry or banker review. Most banks in today's economy have chosen to reduce their inquiry windows down to 14 days. This means that consumers applying for loans on August 1st through Wells Fargo would have until August 14th to apply to as many other banks for mortgage approval without more than one inquiry score reduction occurring on the scores. After 14 days, the inquiry window would close, and having another bank pull credit scores would cause an additional score decrease of 2 to 5 points (totaling ten points). When consumers buy credit scores online and have their credit pulled, it is considered a soft pull or inquiry, and the scores do not drop at all. Soft inquiries cannot be seen by lenders, and therefore do not reduce scores. When consumers look to pull their credit scores online, there is only one site that will provide Fico scores, www.MyFico.com. (Many consumers are confused, thinking they are purchasing Fico scores when they may really be buying Vantage, Plus, Credit Karma, or Equifax scores, all of which differ in various ways.) The MyFico site supplies consumers with a direct view of Trans Union and Equifax credit profiles and Fico scores. Unfortunately, consumers cannot get a view of their Experian report with Fico score since Experian will not allow Fico to sell or use their info with regard to consumers direct. And though consumers cannot see the Experian Fico scores on their own, knowing the other two bureau scores can leave consumer some leeway in predicting the middle Fico score to be viewed by bankers. For example, if Sam had a 780 Fico for Trans Union and a 772 Fico for Equifax, then he could rest assured that his middle score would be considered excellent (over a 740). Even if his Experian fico score turned out to be a 520, his middle score would remain at 772. If his Trans Union and Equifax scores were 780 and 650, however, then it would be far more important to know his third score: a third score above 740 would put him in an excellent credit position, but a score below 650 would put him in a poor position. Now that the differences between banker Fico scores and MyFico consumer scores have been clarified, it is important to discuss how these differences can affect consumers that are checking their Fico scores online. Because banks pick their window for inquiries through the pulling services hired and consumers can only pull credit scores using MyFico, whose window is 30 days, consumers and bankers can have different scores. This is due to the different inquiry windows of the two services. MyFico has a 30-day window to define mortgage inquires and how they will affect scores, while bankers have chosen to pick a 14-day window through their pulling services. The smaller window for hard pulls can result in additional score reductions due to inquiries, whereas the same number of inquiries through the MyFico site could result in one single score reduction if the inquiries were all done within the 30 days. Consumers with middle scores close to their thresholds of approval must consider the time frame of hard inquiries to ensure the necessary score for loan qualification. For example, Sam's MyFico Trans Union is 724 and his Equifax is a 725. Inquiries drawn out within and over a 14-day period could cause his banker to view a reduced score. If Sam needs a 720, his middle score could be under the threshold and he may not qualify as a result of the inquiries. Sam must check the inquiry section of the MyFico site looking for any inquiries over a 14 day period. If he finds inquiries that fall after the 14 days his score may be lower than the MyFico site reflects once the banker pulls his scores. Remember: student loans, car loans or leases, and banker credit inquiries are all viewed in separate windows and will affect the score differently than credit card reviews. Credit card reviews are all considered hard inquiries and reduce the score 2-5 points. If a promotional credit card inquiry is done, it is considered a soft pull and will not hurt credit until the consumer applies for approval on the offer. If a consumer buys their Fico score online through the fico site they must remember that this score, although very similar, may differ from what bankers see. This difference is directly related to inquiries. |
by Linda Corbin (Home Mortgage Consultant for Wells Fargo)
