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A Better Way to Treat Inquiries

In my last post, I discussed the specialized logic in the FICO® Score that accounts for loan rate shopping by consumers. As a quick refresh, this includes the score treating all student loan, auto and mortgage inquiries within a 45-day period as a single inquiry—what’s called an inquiry “deduplication (dedupe) window.” Naturally, I’m often asked: why is this dedupe window 45 days? The answer: because the data tells us so.

Here’s a bit of background. During an earlier FICO® Score redevelopment, we revisited the inquiry logic to determine if the dedupe window, which at the time was 14 days, remained ideal for risk prediction. During this time, consumers were becoming more financially savvy, and spending more time in their search for the best interest rates for mortgage and auto loans. We realized that if the 14 day window was too short, too many inquiries would be counted, which would excessively penalize consumers and yield a slightly less predictive score characteristic.

To evaluate whether to lengthen the dedupe window, we analyzed 14, 21, 30, 45, 60 and 90 day windows, and measured the resulting impact to predictiveness. Specifically, we looked at information value, a statistic that measures how well a given characteristic separates goods from bads.

In general, our results showed that by expanding the length of the dedupe window, the characteristic was better at predicting risk. Figure 1 below is based on the performance of all credit accounts on the consumer’s file. Figure 2 is based on the performance of new accounts only. We repeated the same analysis for new accounts (those opened within 6 months following the scoring date), since inquiries can be more relevant in an originations context. Risk patterns are fairly consistent in both contexts.

Inquiries Fig-1-Fig-2-450px

For the total population, increasing the dedupe window leads to a slightly stronger characteristic—but there is an upper limit to these gains. There is marginal improvement in using either 60 or 90 day windows.

For the clean population (roughly 70% of consumers), the ideal window is 45 days, for both the all accounts and new accounts analyses. Interestingly, we see that the ideal dedupe window for the rest of the population—those with at least one derogatory event on their credit history—may be greater than 45 days. This is intuitive since consumers with blemished credit histories may require more time to find and secure credit.

Ultimately, the 45 day window was chosen. It was more predictive than the prior 14 day window, and the longer 60 and 90 day windows were not substantially more predictive. In fact, for the clean population, the longer window had little predictive merit. Additionally, it would be impractical and confusing to consumers if different windows were used to assess inquiries. Based on this research, we rolled out changes to the FICO® Score at all three credit bureaus.

This illustrates the type of research that we undertake regularly to ensure that the logic underlying the FICO® Score remains sound. And of course, we look beyond just the treatment of inquiries. Our credit scoring models are periodically redeveloped to account for any notable changes in risk patterns. This ensures that the FICO Score is adapting when consumer credit behavior evolves or new financial products are introduced. Our goal continues to be producing the most consistently predictive score possible.

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Comments

Mike

Does this mean that FICO now treats all mortgage inquiries within a 45 day period as a single inquiry or is this something being proposed for the future?

Nabil Captan

Frederic, I was told that the first 30 days of mortgage and auto inquiries have no impact. However,all mortgage or auto inquiries in the next 45 days following the 30 days period are counted as one.
Can you set the record straight for me please.

Frederic

Nabil, what you have been told is correct. Auto or mortgage inquiries made within the last 30 days are completely ignored by the FICO Score. After that 30 day period, auto or mortgage inquiries made within 45 days of each other are counted as one.

Frederic

Mike, the blog post was referencing research that has already been incorporated into the FICO Score. For quite some time now, the FICO Score has been employing more sophisticated logic to better account for consumer rate shopping behavior.

James

Frederic, What FICO Model is using the "Auto or mortgage inquiries made within the last 30 days are completely ignored by the FICO Score. After that 30 day period, auto or mortgage inquiries made within 45 days of each other are counted as one."? Will this still hold true after 6 months have passed?

Jill Richardson, FICO

All recent releases of FICO Score models follow the inquiry logic discussed in this post, and yes, it holds true after 6 months have passed.

Josh

Thank you for discussing this.

Is the 45 day a rolling period? For example, if the first inquiry is June 1st, the next is 45 days later (July 15th), and then another August 30th, is this all 1 inquiry because they are linked by 45 day period or would this be 2 inquiries for FICO purposes?

Josh

"As a quick refresh, this includes the score treating all student loan, auto and mortgage inquiries within a 45-day period as a single inquiry"

Is this to say that these inquiry types are combined as well? So if you apply for mortgage, car, and student loan within the window are they all grouped?

Freddie Huynh

The spirit of our inquiry logic is to assess the number of unique searches for credit that a consumer has made. If you apply for a mortgage, car, and student loan all within a short period of time, they can be counted as 3 separate inquiries. As a contrasting example, this is different than 3 auto inquiries made in a short period of time being deduplicated to one inquiry because that represents one search for credit – in this case a car loan. Thanks for reading!

Freddie Huynh

Yes, the 45 day is a rolling period. Before I elaborate on the rolling deduplication window, please remember that any auto, mortgage, or student loan inquiry made in the past 30 days is ignored by the score algorithm. Outside of that 30 day buffer window, a rolling deduplication window is used. For purposes of your example, let’s assume that the score date is October 9th and that the three inquiries you identified are all auto inquiries. Also, let’s say the inquiries occurred on August 30th, July 20th, and June 15th. The August 30th auto inquiry is the first inquiry counted. The July 20th inquiry is deduplicated; it is not counted because it falls 41 days from the first inquiry. The third inquiry is counted because it does not fall in the first 45 day dedupe window. This third inquiry creates a new deduplication window. This is very complex logic, but is necessary to make sure we are appropriately assessing inquiry information.

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