Summary
The current environment affords lenders an opportunity to attain good margins on new business contracted. Therefore, it would be a bad decision to pass business simply because the applicant has a number of recent inquiries in his credit bureau report. More discrimination is required to make a sound, informed decision.
Analysis
If a person has marginal credit and appears to be applying for a loan from multiple lenders because his application is being rejected, then this fact would be a significant (and negative) factor in the credit decision. If however, a person with good credit is applying for a loan and it appears he has requested a loan from several lenders in order to obtain the best credit terms, this factor should be considered at worst neutral in the credit decision. The tools and techniques are available to model this behavior and build it in to a lenders proprietary credit scoring model, including the appropriate weighting.
There is much benefit to be gained by ensuring your risk management models and related processes are sound, based upon all relevant data and are kept current. A few basis points of incremental margin, reduced servicing costs or reduced credit losses can add up to millions of dollars on a large portfolio!
