Inquiries on your credit report – What is the real story?

Minneapolis, MN:  As a Mortgage Loan Officer, I’ve pulled and reviewed a lot of credit reports in my day.  I’ve also spent an incredible amount of time debunking the irrational fear so many people have about inquiries on your credit report.

This one sentence is all most people need to know.

STOP worrying about it.

For the vast majority of the people, the vast majority of the time, you should never ever give a second thought to an inquiry on your credit report. It just isn’t what people think.

Credit score factors

So What Is A Credit Inquiry?

Whenever you apply for credit, a credit report is reviewed, and a notation that a creditor reviewed your credit file is added to your report. This is known as a hard inquiry.

A soft inquiry has no effect on anything, and is when creditor review your credit so they can offer things like pre-approved credit cards, or when you review your own credit report.

Where all the fear comes from, is that it is true that inquiries may have the potential to impact your credit score.  MAY HAVE and POTENTIAL and important words.

Do Inquiries Hurt My Credit Score

Maybe, but doubtful in any measurable manor most of the time.

Everyone needs to have credit reviewed. Doing so really doesn’t mean anything to your credit score. It is only when you have a large number of inquiries in a very short period of time that might have a small impact.

Credit scoring models see it as a sign of higher risk when someone applies for a lot of credit in a relatively short window of time. Statistics show a lot of inquiries may show that someone is having financial difficulties.

The scoring models also understand sometimes people have multiple inquiries simply because they are shopping for a loan. This is especially true for car loans and home mortgage loans.

For example, all mortgage loan inquiries in a 30-day window only count as one.

Inquiry Effect Different People Differently

Someone with a 820 credit score and maybe five inquiries in the past 90-days might only see a 5 point temporary drop, but someone with a 641 score to begin with might see a larger drop.

If you temporarily drop from 820 to 810… who cares, you have awesome credit! On the other hand, if you dropped from 641 to 631, this may result in a loan denial, as you were already on really shaky ground, and now went below a minimum score requirement.

Then, as the inquiries age past generally 120 days, the effect on your score goes away. IT’S ONLY TEMPORARY!

Credit Inquiries – The Bottom Line

If you need to apply for credit, apply for credit, and don’t worry about it. On the other hand, probably not a wise idea to accept every Department Store at the malls offer for a credit card at the register when Christmas shopping if you will be looking for make a large purchase in the next few months.

If you think you will be applying for a large loan, like a car or mortgage loan, try to limit the number of hard inquiries in the proceeding 90-days.

Yes, a lot of inquiries in the past 90-days may have a very minor 10 point or so effect temporarily on your credit score, but one 30-day late payment,  and max’d out credit card balances will kill your score.

Relax… Be smart, and for 99% of people 99% of the time – don’t worry about inquiries.


Do Pre-Approval Letters Really Mean Anything?

Do Pre-Approval Letters Really Mean Anything?

Minneapolis, MN: When buying a home, everyone will tell you that you need a Pre-Approval Letter, and pretty much no sellers will look at your offer without a Pre-Approval Letter being attached to your offer. But do Pre-Approval letters really mean anything?

The correct answer is yes, no and maybe.

The intent of a pre-approval letter is incredibly valid in the home buying process. It is designed to inform a potential home buyer that their odd’s of final loan approval is strong. For sellers and Real Estate Agents, it tells them the buyer has met with a Loan Officer, who has reviewed their application and documentation, and everything looks good for final approval once they select an actual home.

iMortgageJoe.com Certified Pre-Approval Letter

Pre-Approval is very different from basic Pre-Qualification

Pre-Qualification is always the initial step in the home loan process. The client provides and application, and the lender generally pulls a credit report for review. The client provides an overview of they situation, including jobs, income, assets, and debt. Usually just verbally.

Other than maybe a credit report, little, if any actual supporting documentation is obtained. It is more of a sounds like you should be fine type conversation on certain assumptions.

This is generally adequate for early kicking around the idea of buying a home, and can be done rather quickly on the phone.

Standard Loan Pre-Approval

The more typical standard mortgage loan Pre-Approval starts with the steps of Pre-Qualification, but the Loan Officer also collects and actually reviews your standard supporting documents, like pay stubs, W2’s, bank statements, and tax returns. The Loan Officer will also usually submit the application information through an automated underwriting computer system (AUS) to get a computerized initial loan approval.

This is a huge step above a Pre-Qualification, but is almost always limited to just the Loan Officer’s review. In-experienced Loan Officers, and not reviewing all documents may result in being told your are Pre-Approved, but the application may actually be denied.  It is extremely important to have an experienced Loan Officer who has seen just about everything on your side to eliminate future issues.

This is the most common form of Pre-Approval, and fits well for the vast majority of clients. It can generally be done in a day or two with most lenders.

Full Underwriter Pre-Approval

Full Underwriter mortgage Pre-Approval is when your application and all supporting documentation are reviewed and approved by an Underwriter.  This includes reviewing all your documents, and completing all the job verification, tax return verification, and fraud check that lenders do as part of the approval process that are not done with a standard Pre-Approval.

This is also sometimes known as a full credit approval. It is still not a guarantee of closing, as the lender will need to get an appraisal and review a title company commitment of clean title once you have a successful offer on a home before, but all credit related issues have been cleared.

As this is a full credit approval, this generally can take two weeks or more to complete.

Underwriter Pre-Approval Carries More Weight

Mortgages Unlimited offers both your standard Pre-Approval, and a Full Underwriter Pre-Approval, depending on the clients needs. We call it our process of Underwriter approval a Certified Pre-Approval.

Certified Pre-Approval, Underwriter Pre-Approval

Underwriter Pre-Approval holds more weight, and is more attractive to sellers, especially when looking at multiple offers. Home sellers like it better knowing that more pieces of the approval puzzle have already been reviewed and signed off on by an actual underwriter. It puts your offer on top of any standard Pre-Approval, and especially any basic Pre-Qualification.

This is why we at The Joe Metzler Team at Mortgages Unlimited offer both options. The speed of a basic Pre-Approval Letter, and the Confidence of an Undewrwriter reviewed Certificed  Pre-Approval Letter.

We lend in MN, WI, and SD. To apply directly with me, and find out what type of Pre-Approval is right for you, just go to iMortgageJoe.com, my personal web site, or call me at (651) 552-3681.