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A reader, Shelly, recently told us she applied for a mortgage while her home was under construction. She had given the lender permission to pull her credit reports, which is routine in such a situation. However, she recently learned that she won’t be eligible for the interest rate she expected — and will have to pay an additional $40 a month. The reason? Because of too many inquiries on her credit report. She said the excessive inquiries are all related to the mortgage.

Her questions: Is that legal, and whom should she contact for help?

First, yes it is legal for a lender to pull your credit reports or scores multiple times, as long as a company has a permissible purpose for getting the score. However, lenders don’t typically do it because every pull costs them money, says Credit.com Director of Consumer Education Gerri Detweiler. Also, once you already have a loan, a credit inquiry usually — but not always — is categorized as an “account review” inquiry, which is a soft inquiry that doesn’t affect your scores. What is more typical is an initial credit pull when you apply for a mortgage and a second one shortly before closing to make sure that there are no substantive changes.

Scott Sheldon, a senior loan officer and consumer advocate based in Santa Rosa, Calif., said that he could think of scenarios in which a score would be pulled repeatedly, but they normally involve situations in which a borrower’s score is likely going up, and the borrower gives specific permission for the additional inquiries.

What can Shelly do? She can submit a complaint to the the Consumer Financial Protection Bureau, said Sheldon. They will look into it and pursue it from there. Another option is to consider contacting a consumer law attorney to see if she possibly has a credit damage case.

It’s sometimes difficult to tell if the inquiries have been the exclusive source of the credit score dropping. Inquiries are often listed as a “reason code” when in fact they usually play a minor role in the score. Shelly would have to carefully compare her credit scores and credit reports to make sure nothing else could have caused the score to drop.

Keeping Track of Your Credit

And if you are looking to buy a home, should you be worried this could happen to you? Not really, but you should also be careful to protect yourself.

First, don’t apply for new credit after you apply for a mortgage. Inquiries and new accounts can cause your credit scores to drop. The effect is usually small and fairly temporary, but in a mortgage situation, a drop of a few points could cost you thousands of dollars over the life of the loan if you are forced to take a higher rate.

Second, consider monitoring your own credit — and if you have not yet applied for a mortgage, check your credit reports first. Once you’ve applied for a mortgage, you can monitor your credit scores for changes (there are free tools that can help you do that, including Credit.com’s Credit Report Card).

“When a consumer accesses his or her own credit report through a credit monitoring service, it creates a soft inquiry, which does not affect their credit scores,” Detweiler said. “It could be a good way to tell what’s going on. A couple of specific situations where this would be valuable would be where a consumer is in a construction loan that will need to become a permanent loan in a few months or even a year, or when they have been initially pre-approved for a mortgage but are taking time to shop for a home. In either of these situations it can be helpful to keep an eye on your credit so there aren’t unwelcome surprises.”

More on Credit Reports and Credit Scores:

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  • Barbie Jay

    You can also write the mortgage company a certified letter disputing their actions and request they remove the inquiries from your credit file. When trying to locate an address, call and ask for the mailing address to the “credit bureau disputes” department or division.

    • MuzikGurl

      But doing this could also look bad because it is a dispute and many lenders and creditors frown upon people with disputes currently active on their reports. If she disputes these inquires it will tag her report and all others will see that tag and many would be afraid to even bother with her because they do not want to deal with someone who disputes something so small as an inquiry. Usually inquiries only cost a point or two on your score and if she was denied because of the inquiries she could ask the lender or credit in which she was rejected from on how many inquiries does it take to be approved..usually they will give you a number like some creditors would say if you have as little as 2 on your report within the past year you will be rejected others will say they can go up as high as 20 within a year…Her best bet is to leave it alone so she won’t be “black listed” for future pulls…these inquiries can stay on your report for 2 years but only held against you for 1 year so, wait it out in the meantime don’t apply for anything else avoid having any more pulls and send in a written request to the loan company who made the pulls to stop all pulling and to remove you from their list of inquiries. By law they have to comply if they continue to pull after you written request them to stop then seek out a lawyer because this then becomes a legal matter.

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