 Know
your credit score 'window'
|
 Dear
Steve,
We are going to take out a cash option on some
land we own. We want to get the best terms we can, but when we ask
for terms we hear that it depends on our credit rating. While I
realize this is true, is it also true that too many inquiries on
your report also lowers your score? Does it matter if they are all
about the same time for the same purpose?
-- Christine
 Dear
Christine,
I'm not sure what you mean by a "cash option,"
but assuming you mean some type of an equity loan on your property
we'll go from there.
You are right to want to get the best terms on your
loan, and you are also correct that credit inquiries can affect
your credit score. However, the elves at the Fair Isaac Corp. workshop,
who work on those FICO scores that we all care about, know that
in today's market consumers are urged to shop around for the best
deals available. Therefore, they have a system in place to address
this very issue.
Multiple mortgage inquiries made within 14 days are
basically treated as one inquiry. In addition, those inquiries dated
less than 30 days prior to your score being requested are not counted
when your score is calculated. What this means is that you should
be timely in your shopping and not drag the process out longer than
30 days if possible. If this is not possible, you can send an explanation
letter to the three credit bureaus detailing your circumstances.
This may or may not help, but it will not hurt.
The same blocking device applies to auto-loan inquiries
as well. Finding the best deal on a new car loan is almost as important
as shopping for a mortgage to today's consumers. Many new cars today
cost more than my first house! Again, the 30-day window applies,
so consumers should be sure they are ready to commit before giving
permission to lenders to check their credit.
One thing to keep in mind, though, is that credit
inquiries really don't count for all that much in the big picture
of credit scoring. Although FICO is reluctant to divulge exact measurements
in this regard, for the general population it is probably safe to
say that inquiries account for 10 percent or less of the total maximum
of 850 points.
Although you did not say why you are shopping for
a loan, I feel I should point out that the reason that loans secured
by property are less expensive than, say, a credit card is that
you are putting yourself in the position of possibly losing the
land if you ever default on the loan. If you are taking out the
loan to get out from under other debt, such as credit card debt,
be careful that you have a plan in place to pay down the loan on
time. Trading an unsecured debt for a secured one can be a risky
proposition and needs to be well thought out.
Many people who have gone the route of paying off
consumer debt with an equity loan have wound up in worse financial
shape because they continued to spend and built their credit card
debt right back up again. Be conscious of this mistake and be sure
that you do not overextend yourself and put your property and your
credit at risk.
Good luck with the rate shopping!
The
Debt Adviser, Steve Bucci, is the president of Money Management International
Financial Education Foundation. Visit MMI
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