My Credit Plan Blog

Answers to the December Questions on Inquiries and Lenders

Tue, 31 Dec 2019 18:40:00 GMT

Question Number 1 How soon after a lender requests your credit report does the hard inquiry lower your lender’s FICO scores?

FICO scores are very time sensitive. These scores look at months, not days, in determining time for numerous calculations. There is a particular time each time when FICO scores turn the page from one month to another month. It is the beginning of each new month that these calculations are all updated. I call it the FICO monthly transition point.

Why is this so critical? It is when all time sensitive issues are updated for the month. At the beginning of each new month, hard inquiries are updated and impact the FICO scores. There are two points to understand.

1. Lenders have pulled a client’s credit report multiple times within a month. Does that mean if the credit reports are not requested at the same exact day that the lender who pulls the client’s credit report the following day is going to have lower FICO scores?

No. The same FICO score (s) that was requested by the lender the previous day is the same FICO score (s) given the following day. Lenders see this hundreds of times each day. So why didn’t the second lender’s FICO scores drop on the following day? Because the impact from the hard inquiry does not impact the FICO scores until the beginning of the following month (all things remaining equal in the two credit reports).

2. FICO reason code 8 is “Too many inquiries last 12 months”. What is the last 12 months? Is it 12 months from today’s date when your credit report is pulled? Say it is the 10^thof January. Is it all inquiries from January 11^th last year to January 10^th this year? It is the beginning of each month. Your FICO score goes back to the 12 “completed” months and those inquiries impact and lower a FICO score.

The number of hard inquiries is updated at the monthly transition point, or at the very beginning of the following month. This is when the average account age, the number of new accounts, the time since delinquency, the time since derogatory public records and collections, along with other time calculations, are updated in the number of months for FICO scores.

Question Number 2 - Increases in purchasing power (and / or lower mortgage interest rates) are determined by your mortgage lender in increments of how many Classic FICO Score points?

It is 20 points from 580 to 800. The same interest rate is given for example to a consumer who has a 660 and a 679 (not a 680 score), a 680 and a 699 (not a 700 score), and a 720 and 739 (not a 740 score).

Question Number 3 - There are two borrowers on a mortgage application. Borrower A has FICO scores of 650, 681, and 693. Borrower B has FICO scores of 696, 701, 713. Which FICO score is used for their loan approval and interest rate?

It is the lowest middle score of both borrowers. The middle score of Borrower A is 681. The middle score of Borrower B is 701. It is the lower of these two scores, or 681 in this example.

Question Number 4 - An individual is trying to reestablish credit after a period of derogatory marks and no recent loan activity. Which one of the following statements is true about credit cards and FICO scores (Everything considered equal)?

It is opening an American Express credit card will increase FICO scores more than opening Security Service Credit Union credit card. Why? No disrespect to Security Service Federal Credit Union and any other credit union. Bank credit cards hold more value to the Classic FICO score than a credit union credit card. Open an American Express card and it will boost your Classic FICO scores higher than any other card – all things considered equal. It comes from FICO reason code 15 – “Lack of recent bank / national revolving information.”

Answers to the November 2019 Survey - Purchasing Power

Wed, 20 Nov 2019 21:48:00 GMT

A mortgage (credit report) inquiry is different than a regular hard inquiry. A home buyer can have his / her credit report pulled by multiple mortgage lenders within how many days in order to have all mortgage inquiries count as only one inquiry in the (mortgage) Classic FICO credit scores?

7 days
14 days
30 days
45 days

A potential homebuyer increases his / her (mortgage) Classic FICO® credit scores from 679 to 680, Applying for a 5% down, 30-year conventional mortgage, how much by percentage does that change in credit score improve the homebuyer’s purchasing power?

0%
1.2%
3.1%
7.7%

The majority of auto lenders use which credit score model to approve their auto loans?

Vantage Credit Score (Credit Karma)
FICO 8 Bankcard (Discover)
FICO 9 (Experian)
Classic FICO credit scores (My Credit Plan)

A consumer increases his / her (auto) credit score from 679 to 680. Applying for a 6 year auto loan with nothing down, how much by percentage does that change in credit score improve a consumer’s purchasing power?

0%
1.6%
3.0%
5.5%

Question number 1

Hard inquiries lower credit scores. A mortgage (credit report) inquiry is different than a regular hard inquiry. A home buyer can have his / her credit report pulled by multiple mortgage lenders within how many days in order to have all mortgage inquiries count as only one hard inquiry in the (mortgage) Classic FICO credit scores?

FICO states:

“If your FICO Scores find some, your scores will consider inquiries that fall in a typical shopping period as just one inquiry. For FICO Scores calculated from older versions of the scoring formula, this shopping period is any 14 day span.”

Multiple mortgage inquiries from shopping for a mortgage, as long as they are within 14 days, all count as one hard inquiry. If additional mortgage inquiries are requested by mortgage lenders, each one will count as an additional hard inquiry.

The 14 day period starts with the first one and goes 14 days.

Question number 2

A potential homebuyer increases his / her (mortgage) Classic FICO® credit scores from 679 to 680, Applying for a 5% down, 30-year conventional mortgage, how much by percentage does that change in credit score improve the homebuyer’s purchasing power?

Let’s look at 2 potential homebuyers – one with a 680 credit score and a second with a 679 credit score.

30 Year Fixed Rate Mortgage with 5% Down Payment

Buyer A Buyer B

Credit score 680 679

Interest Rate 4.00% 4.25%

Mortgage Loan $300,000 $278,440

30 Year Payment $1,432.25 $1,369.75

Mo. Mortgage Ins. $245 $307.5

Total Payment $1,677.25 $1,677.25

Increase in Purchasing Power - 300,000 divided by 278,440 is 7.7% increase.

Buyer A has a 680 credit score and Buyer B has a 679 credit score. Buyer A gets a 4.00% interest rate while Buyer B has a rate increase from the lower credit score that puts the interest rate at 4.25%.

The mortgage insurance on the loan is different in both situations. For a $300,000 mortgage, the mortgage insurance on Buyer A is $245 a month. The mortgage insurance for Buyer B is $307.50 because of the 679 credit score.

Payments in both scenarios is $1,677.25.

The difference in loan amounts for the same payment is a 7.7% increase in loan amount – or purchasing power.

Question Number 3 T

The majority of auto lenders use which credit score model to approve their auto loans?

About 70% of all auto lenders use the Classic FICO credit scores (goes to 850) found at My Credit Plan, to approve their auto loans. About 30% of auto lenders use the FICO 8 Autoscore which goes to 900. This is according to the largest credit agency who compiles credit reports for all types of lenders.

Question Number 4

A consumer increases his / her (auto) credit score from 679 to 680. Applying for a 6 year auto loan with nothing down, how much by percentage does that change in credit score improve a consumer’s purchasing power?

72 Month Fixed Rate Loan with 0% Down Payment

Buyer A Buyer B

Credit score 680 679

Interest Rate 4.49% 6.24%

Auto Loan $30,000 $28,531

Total Payment $476.08 $476.08

Increase in Purchasing Power - 30,000 divided by 28,531 is a 5.1% increase in purchasing power.

Buyer A has a 680 credit score and Buyer B has a 679 credit score. Buyer A gets a 4.49% interest rate while Buyer B has a rate increase from the lower credit score that puts the interest rate at 6.24%.

Payments in both scenarios is $476.08.

The difference in loan amounts for the same payment is a 5.1% increase in loan amount – or purchasing power.

Expanded Explanations for the October 2019 Survey

Fri, 18 Oct 2019 20:23:00 GMT

What type of an account should a responsible 18-year old first establish to generate high credit scores?

One of the critical factors to excellent FICO scores is how long is the longest account reference in your credit report. A checking account is not a credit reference and will not appear on your credit report by itself. Student and auto loans have a set period when they are paid off (some former students may argue that student loans never pay off). At that time when they are paid off, auto and student loans are closed and will eventually fall from your credit report.

A credit card is usually open indefinitely and can build depth in your credit report from time it is open. If the credit card is managed properly – no late payments, periodic use, and minimum balances, that credit card can push your FICO scores into excellent range. A consumer with an 800 level FICO scores will have a credit card open for at least four years.

Everyone worries about the credit utilization ratio, or balance to credit limit ratio, on credit cards. How is the credit card balance established when it appears in your credit report?

It is the balance on the lender’s reporting date. This date is usually once a month and initiated by the lender. It is when your lender sends your account information to the credit bureaus. It is this balance that will appear on your credit report for a month until the lender updates your account on their reporting date the following month. The date will vary from lender to lender. It is up to the lender when they report. Some large lenders will report their loan to the credit bureaus

There are many different credit scores generated from dissimilar credit scoring models. Which credit scores are used by all mortgage lenders along with the company that offers them?

It is the Classic FICO Credit Scores

There are many credit score models found all over. These credit score models can produce a score that can be different by 100 points or more from one model to the next. One credit score model can tell you that you have a 750 credit score, while another will show you with the same information having a 650 credit score. It is crazy.

The bigger concern here – these companies do not tell you that the score model they offer is not the same one used by mortgage lenders – and the difference that can exist. Since one Classic FICO score point can cost a new homebuyer thousands of dollars more annually, knowing your actual Classic FICO credit scores is critical to know your true credit standing with mortgage lenders.

Why don’t these websites, lenders, or credit bureaus offer the same Classic FICO credit scores as is required by mortgage lenders? There are agreements already made between FICO, the major credit bureaus, lenders, and websites such as Credit Karma and Credit Sesame that prohibit the disclosure of these scores.

My Credit Plan can provide the Classic FICO credit scores because it is operated by Family Financial Education Foundation, a 501 (c) (3), non-profit certified credit counseling agency. In 2015, the Consumer Financial Protection Bureau ruled that non-profit credit counseling agencies could disclose their client’s credit report and Classic FICO credit scores to their client.

To read more about it, here is the link to the announcement:

https://www.consumerfinance.gov/about-us/blog/millions-of-consumers-will-now-have-access-to-credit-scores-and-reports-through-nonprofit-counselors/

How long does a “hard inquiry” impact your lender’s credit scores?

It is 12 months. More recent inquiries can have a greater impact than those older ones.

Hard inquiries lower a credit score because it shows risk to a lender. How? FICO has researched that those consumers who have six or more hard inquiries in a 12 month period are eight times more likely to file bankruptcy.

Like it or not -- it is a risk issue.

Do You Know Important Facts that Impact Your Credit Scores

What is the best credit account an 18 year old should first open to build scores?

How is the balance determined on your utilization ratio?

What specific credit score model is used by lenders?

How long does and “hard inquiry impact your credit scores?

Click on the link and find see if you know – takes one minute:

https://www.surveymonkey.com/r/MyCreditPlanOct19

For an expanded explanation, please go to www.MyCreditPlan.org/blog

My Credit Plan has 3x better results in credit score improvement than the nearest competitor - a 73 point average improvement. Provides your 3 FICO® scores and usually identifies MANY SOLUTIONS to improve your credit scores.