This is a common question from buyers, and we wish we had a simple "yes" or "no", but we don't and neither does anyone else, because the credit bureaus don't reveal the exact methods they use to determine credit scores.
We do, however, have answer that is almost as good as a confirmed "yes" or "no", which is that you should have a 30 day window from your first credit pull to have your credit pulled by as many lenders as you wish.
How do we know this? First, some background: If you've read our FAQ on getting the best deal on a loan, you know that we highly recommend you get quotes from multiple lenders. Sometimes, buyers are worried that having multiple credit pulls will lower their credit score. Here is an excerpt from a great article written by John Ulzheimer, summarizing the process credit bureaus go through when evaluating your credit pulls:
But how can I get credit if I don't shop for credit?
The simple answer is that you can't. It's impossible. Anytime you want to shop for a loan or apply for a credit card the lender is going to want to look at your credit reports and credit scores. When they do so it will post a hard inquiry, which can lower your credit scores.
And, when you want to shop around for the best loan rate you could end up with multiple inquiries from multiple lenders. This is very common especially in the mortgage and auto lending environments. Generally consumers will shop around for the best mortgage and auto loan interest rates.
How do credit reports and credit scores treat the act of shopping around for the best interest rate?
In order to address this question you have to split them up and examine changes in consumer credit shopping patterns over the past 20 years.
Credit Reports Here's the bad news. Credit reports are nothing more than warehouses that store your credit histories. They don't have a brain so they cannot distinguish between when someone is shopping for the best interest rate versus someone excessively shopping for credit. The two actually look very similar on a credit report. A lot of inquiries may be posted in a very short period of time and there's no difference on the surface.
Credit Scores Here's the good news. Credit scores are actually quite sophisticated and can be programmed to interpret credit data, specifically inquires, in an appropriate way. . A smart credit scoring model will be programmed to read multiple inquiries in a short period of time as a consumer shopping around for a good deal on a car or mortgage loan and not a consumer applying for four or five separate loans.
A Little History Here's the bottom line. Think about how the credit landscape has changed in the past two decades. Twenty years ago the widespread access to lenders via the Internet was a fantasy. Consumers certainly didn't shop around as aggressively as they do today. Think about it. You can actually apply for almost any loan at any time of the day or night right from the comfort of your own home and get an answer virtually immediately.
If the companies that developed credit scoring models wanted to treat consumers fairly they would be forced to adjust how their models treat the act of shopping for a loan. To their credit, they did exactly that.
It's 1985 - Shawn wants to apply for a mortgage. He goes to his local bank or credit union and meets with the same person whom he's borrowed from for years. He fills out paperwork and two months later he gets a decision as to whether or not he has been approved and at what interest rate. This process resulted in 1 inquiry being posted on his report.
It's 2005â?? Shawn wants to apply for a mortgage. He logs on to the Internet and goes to several bank and mortgage company websites where he applies to pre-qualify for a mortgage loan. In about two hours he has guaranteed interest rate quotes from a half dozen lenders who are willing to overnight him paperwork to get his loan process started. This process resulted in six inquiries being posted on his reports.
Would it be fair to treat those inquiries the same way when they happened 20 years apart? Of course it wouldn't. Shawn is still only going to have 1 loan regardless of how many inquires are on his credit reports. As such, the credit scoring industry had to change how they treated inquires to keep up with changes in how consumers shopped for credit.
Here's what the industry did. They incorporated a process called Inquiry De-duplication into their scoring models. In English this means that they built a way to treat multiple inquires resulting from the act of shopping for one loan as one inquiry. The logic was actually quite simple and makes very good common sense. How can you tell if someone is shopping for a car loan or a mortgage? It's very likely that all of the inquiries would be from auto lending companies or mortgage lenders, correct? It is also very likely that these inquiries would occur over a short period of time because consumers tend to shop for those items over a short timeframe.
Fair Isaac, the developer of the FICO credit score, uses a 14 day window for their de-duplication. Any inquiries that can be reasonably assumed to be from a car loan or mortgage application that occur in a 14 day window are treated as one inquiry in their scoring models. It doesn't matter if you have 20 inquires. As long as they are from lenders who can grant auto or home loans AND they are all done in a 14 day period they only count as one. In fact, this logic is in the process of being expanded to count the same multiple inquiries occurring within a 45 day period as 1 inquiry.
This de-dupe logic allows consumers to shop around for the best interest rate without having to worry about inquiries lowering their scores. It also removes any barriers preventing consumers from applying at many creditors, which is good for credit report and credit score sales. Certainly a smart move for the respective businesses since credit reporting agencies and credit score developers are paid each time a credit report and credit score is pulled by a lender.
How do you know if you have too many inquiries?
It's the million-dollar question. How many inquires is too many?
There are two ways to tell if you have too many inquiries.
Score Factors Each of your credit scores is accompanied by reasons why your score wasn't higher. These are called Score Factor Codes or Reason Codes. There are generally four of these plain English explanations delivered with each score. If one of these four explanations is You have too many inquiries then you can be sure that your inquiries are hurting your credit score.
FACTAFACTA is the acronym for the Fair and Accurate Credit Transactions Act. This act amended the Fair Credit Reporting Act in many ways. One of those ways is relevant to inquiries and their impact to your credit score. Even if your inquiries played a minor role in lowering your score you still have the right to know that. The following language is now a matter of federal law:
If a key factor that adversely affects the credit score of a consumer consists of the number of enquiries (sic) made with respect to a consumer report, that factor shall be included in the disclosure.
If you apply for a mortgage then you will receive your credit reports, credit scores and all factors that adversely impacted those scores, including any impact of inquiries. This portion of FACTA is specific to the mortgage environment. So, don't expect your credit card issuers or your auto dealer to share this information with you.
We highly suggest you learn your credit score, and find out now if there are any issues you need to clean up (like erroneous strikes against your credit), as it can take several months to fix your credit score. Visit MyFico.comto get a copy of your credit report and learn what you can do to raise your score. By pulling your own credit you may also be able to give a copy to the loan officers below to obtain a pre-qualification letter. You can also monitor your credit score using a monthly subscription service called TrueCredit.com. This service lets you pull your credit as often as you want, and it alerts you when there's suspicious activity on your account. It costs about $15/month. We recommend it. You can also read this DROdio - Do's & Don'ts for credit scoressheet from Eillen Rosario, a senior loan officer from OlympiaWest Mortgage Group. You can reach her at 703-734-7499 x 298 (office) or 202-277-8355 (cell) or at email@example.com