7-13-18: How do inquiries impact my credit score?
Question of the week: How do inquiries impact my credit score?
Answer: A lot or not at all.
Quite frequently we have new clients tell us, “don’t run a credit report because I don’t want it to hurt my score.”
My response is, “First I cannot give you a solid pre-qualification and absolutely no pre-approval without running my own report, and second it will not impact your score unless you have had several inquiries recently—have you been speaking with other mortgage professionals and have any of them run reports and if so when?”
Conventional wisdom is that credit inquiries push down your credit score, so when you need credit just by applying your score drops, which may mean a higher rate or credit denial.
Conventional wisdom is not always right, especially when it comes to credit reports. Let’s take a look at when credit inquiries do harm your score and when they do not.
If you are applying for several credit cards, department store cards or signature lines of credit the chances are your credit score will be negatively impacted. If you are applying for one such item of credit your score will most likely not be impacted at all. The credit score programs have in their algorithms risk factors and if they are told that you are making several inquiries to obtain revolving, easy to access credit that activity is a high credit risk—it is evident you are searching for funds from many sources. What if you apply for two department store cards and two credit cards within two weeks. You could very quickly have access to several thousand, tens of thousands, of dollars in credit. If you already have several open credit accounts with high balances compared to credit limits these inquiries will push your score down considerably.
If you have some open credit accounts and the balances are not very high compared to available credit and you apply for a new credit card, say one that will give you airline points so you can leverage your purchases for plane tickets to visit your kid at college, if this is the only revolving credit inquiry on your credit report then your score will not, should not, be impacted.
What about purchasing a home? We routinely see credit inquiries on our clients’ credit reports from other mortgage lenders, usually over the past month or so, and these inquiries do not generally impact the credit score. I say generally because if there are more than five or six there could be an impact but not necessarily. As a rule three or four, or fewer, inquiries for home loans will not impact your credit.
The reason for this is that it is not unusual for someone looking to obtain a mortgage, either for home purchase or refinance, to call more than one lender (unless they call Stratis Financial which is usually the last call needed). This behavior is programmed into the credit score software, so if there are multiple inquiries from mortgage companies in a somewhat short time frame, about 4 weeks or so, your credit score is not impacted.
The same is true about auto loans. Many people speak to many car dealers, who run reports themselves or through different banks, looking for auto loans and these inquiries are treated similarly to mortgage inquiries.
If you have multiple inquiries for long term debt obligations, like home or auto loans, you credit score will likely not be impacted, if you have multiple inquiries for revolving credit your credit score will likely be impacted negatively.
Have a question? Ask me!
Pressure, no pressure, was the impact on interest rates with the price data released this week. On Wednesday the Producer Price Index for June was released and the data put pressure on rates to increase as wholesale prices increased 0.3% for the month and were up 3.4% from last June (2.8% when food and energy are stripped from the data, called the “core” rate). This strong data for prices caused great anticipation for the Consumer Price Index data release the following day. Would the stronger PPI figures show inflation for consumers beyond what the Federal Reserve would prefer? No, the CPI data did not show a significant increase in prices in June, putting Fed interest rate decision makers at ease. Month over month prices rose a scant 0.1% for you across the economy’s basket of goods and services and the generic American consumer paid 2.9% more than in June 2016 (2.3% using the core rate). This data was met with a bit of a sigh, and a shrug. Looking ahead, will the June wholesale price increase bleed into July for consumers resulting in higher rates? We will on August 10th when that data is released.
Rates for Friday July 13, 2018: A tame week in the rate markets with not a lot of movement, so little that rates are the same as last Friday. We like a flat market!
FIXED RATE MORTGAGES AT COST OF 1.25 POINTS LOCKED FOR 45 DAYS:
30 year conforming 4.375% Flat
30 year high-balance conforming 4.500% Flat
Please note that these are base rates and adjustments may be added for condominiums, refinances, credit scores, loan to value, no impound account and period rate is locked. Rates are based on 20% down with 740 FICO score for purchase mortgages.
While we have had some significant summer heat early in July, we are still a week away from the Dog Days of Summer, which officially begin on Sunday, July 22nd and end on Thursday, August 23rd. Wait, there are official Dog Days of Summer? Yup. Based on ancient Roman and Greek astronomy, the time when the star Sirius (the star that is the nose of the constellation Canis Major) rises in the morning before the sun. This year Sirius will rise before the sun starting next Sunday and ending on August 24th (the sunrise after August 23rd).
In those times the period of the dog days were not looked forward to as it was during this period when sickness, war and catastrophes would occur—perhaps coincidence, perhaps not!
Have a great week,
Dennis
