How credit score formula handles multiple credit inquiries

'Deduplication' and 30-day buffer protect mortgage hunters


Speaking of Credit
Speaking of Credit columnist Barry Paperno
Barry Paperno is a freelance writer and credit scoring expert with decades of consumer credit industry experience, serving as consumer affairs manager for FICO (formerly Fair Isaac Corp.) and consumer operations manager for Experian. He writes "Speaking of Credit," a weekly reader Q&A column about credit scoring and rebuilding credit, for His writings about credit scoring have appeared in The Huffington Post, MSN Money, CBS Money Watch and other consumer finance websites.
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Dear Speaking of Credit,
First and foremost, my soon-to-be wife and I have been reading your very informative articles. They've been very instrumental in guiding us along the way in preparing our credit for a home loan. And now it looks like we will be closing in two weeks if everything goes as planned! So a big thank you! But, we have a potential issue that concerns me (us):

Question 1: If the bank's hard inquiries cause my score to go below the minimum score loan approval (700), will they consider me to be no longer qualified for the loan? I'm currently at 706 FICO and the bank will do one last check on my score before closing. I must be above a 700 in order to qualify for this loan.

Question 2: To get a small boost in my FICO, should I have a small balance on my two credit cards that have zero balances? (Note: I did read an article where you discussed it's better to have small balances (i.e., 1 percent) on credit cards versus a zero balance.)

I have three credit cards:

  1. American Express -- $0 ($20,000 credit limit)
  2. Wells Fargo -- $0 ($1,500 credit limit)
  3. Citi -- $333 ($10,000 credit limit).

We have two weeks to do everything possible to ensure our approval status, so any insight would be invaluable. -- Damon & Sandra, first-time homebuyers


Dear Damon and Sandra,
Good work on getting to within two weeks of closing on your first home purchase! Only your lender can tell you whether a particular score will qualify you for loan approval. Where I can help is providing you with an understanding of the likely impact to your score from that one last inquiry.

What I find interesting about your questions is that each touches on an aspect of credit scoring -- impacts of inquiries and zero-to-low balance credit utilization -- where, due to a lack of information within the credit data itself, the scoring formula finds roundabout ways to extract the data it needs from the information that is available.

According to FICO, the addition of an inquiry to your credit report typically lowers your score by five points or fewer. While good to know, this won't necessarily tell you what the potential impact of the next inquiry will be if you don't also know how many inquiries the score is counting, especially since the number of inquiries you see is not always the same number the score considers.

Rate shopping for mortgage loans typically results in multiple hard inquiries -- often as many as three or more -- per borrower for a single purchase. The problem this presents is that counting more than one inquiry per loan application can detract from the accuracy of the credit score. By employing a "30-day buffer" and "inquiry deduplication" process, the FICO scoring formula sets out to ignore duplicate inquiries per purchase and count only the number necessary to help do its job of predicting future risk.

30-day buffer
Loan inquiries incurred within the past 30 days are ignored entirely by the FICO scoring formula. This means that when your lender does that one last credit check, neither the inquiry resulting from that credit check nor any loan inquiries incurred during the prior 30 days will be considered in that score.

Inquiry deduplication
For inquiries older than 30 days and less than a year old, the scoring formula attempts to eliminate from its calculations all but one inquiry resulting from a single purchase through the "deduplication" or "deduping" process. Through this process, all inquiries but one within a rolling focused period of time, such as the typical 45 days, are excluded from scoring. The number of days making up this deduplication period can vary according to the version of the FICO scoring model, with the newest versions using 45 days and the oldest using a 14-day window.

To explain how this deduplication process works, and so you can get a realistic idea of how many inquiries are impacting your credit scores, the following example shows how the scoring formula comes up with a total of three inquiries to be considered in the score, as of March 12, 2015. This process of elimination begins with counting the credit report's oldest inquiry (at the bottom of the chart below) and then either adding or eliminating inquiries, depending on whether they fall within the 30-day buffer period and whether they occurred within 45 days of the prior inquiry:

Total inquiries considered Inquiry date Days since prior inquiry Inquiry considered? Reason inquiry considered or eliminated
3 March 10, 2015 18 days No Within 30-day buffer period
3 Feb. 20, 2015 36 days No Fewer than 45 days since prior inquiry
3 Jan. 15, 2015 158 days Yes More than 45 days since prior inquiry
2 Aug. 10, 2014 70 days Yes More than 45 days since prior inquiry
1 June 1, 2014 0 days Yes No prior inquiry

Note that the table above applies to home loans, but not credit card inquiries. Unlike multiple mortgage, auto and student loan inquiries that are treated as a single inquiry when they occur within a narrow time frame, the scoring formula is not so forgiving of credit card inquiries. Each credit card application can potentially affect your score. That's because with other financial products, multiple applications will result in only one mortgage or one auto loan or one student loan. But if you make multiple credit card applications, you might be shopping for multiple cards.

In terms of which is best to boost your FICO score -- zero or small card balances -- it's common knowledge that credit utilization calculations measure the amount of available credit being used and that utilization makes up almost one-third of your score. What's not so well known is another piece of scoring criteria that doesn't appear on a credit report, but instead is derived from utilization calculations: recent credit activity. The importance of recent credit activity in scoring comes from research showing that not only is low utilization an indicator of lower risk, but maintaining low utilization while continuing to use credit responsibly -- as opposed to paying off debt and putting the cards away -- can be an indicator of even lower future risk and resulting in a slightly higher score.

The best answer to your question of which is better for the score, cards with small or zero balances, is that, while both are good for your score, the ideal scenario tends to be having all but one card show a zero balance (zero percent utilization) and having one card with utilization in the 1-3 percent range. Hey: That's you! 

I wish you well with the mortgage and your first home.

See related: What day is my card balance reported to the credit bureaus?, There's no quick credit score fix, 5 steps to a mortgage-worthy credit profile

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Published: March 12, 2015

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