How much of a negative impact can hard credit inquiries have on your credit score? A reader wrote in, asking a common question, but the impact on his score was rather extreme. We take a look at what could have caused such a huge drop:
I have refinanced 3 times in the last 2 years, creating 3 hard credit inquiries at each of the 3 bureaus over 2 years. Each time, though, my credit was excellent at 800 and I received the mortgages and my interest rate dropped from 6.375 to 3.375. The way I did it there was no cash out from me to refinance so it was a positive win for me.
HOWEVER, when I called my current lender to check on what their current rates were, told them my credit score as it had just been pulled by my mortgage broker as I was going to refi with another bank and I had a copy of it, my bank did a hard inquiry without my permission and that dropped my credit score 104 points as soon as it hit -- it was the only thing that changed on my credit report. It must have been the proverbial tipping point.
Bottom line, when I went to dispute the unauthorized hard inquiry the credit score companies said I cannot dispute hard inquiries unless it is identity theft. This doesn't seem right. And they said it will stay on my record for two years.
[Credit Score Tool: Get your free credit score and report card from Credit.com]
The main misconception to dispel is that additional inquiries alone can be responsible for the loss of more than 100 points. The truth is that a typical inquiry can be expected to drop your score by about 5 points or less. And while this number can be higher or lower on occasion, a credit score will not drop 104 points solely due to an increase in inquiries.
So then what caused such a serious drop in your score? Here's where it can get confusing. While I believe, as you stated, that you truly didn't see anything else that changed on your credit report, it's a fact that something other than -- or in addition to -- inquiries would have had to change on your credit report for your score to take that serious of a drop.
Here are some questions that will hopefully help you get closer to solving the mystery of your credit score drop:
Armed with this information, my recommended next step is to obtain your free Credit Report Card from Credit.com, to review your Experian credit data, Experian credit score and VantageScore.
Then order your Equifax and TransUnion FICO scores, along with the credit reports on which the scores are calculated, at www.myFICO.com. Since you're trying to obtain a loan and FICO scores continue to be the scores used by most lenders, it's best to obtain your actual FICO scores in this situation when possible. This way you'll see the scores most likely to resemble those a lender would see.
Once you've carefully reviewed your credit information from all three CRAs, and your Equifax and TransUnion FICO scores, you should have a better idea of what changes may have impacted your credit scores, and what steps you can begin take to improve them.
[Free Resource: Check your credit score and report card for free with Credit.com]
Image: giulio nepi, via Flickr