Orange County, CA – It’s natural for people shopping around for a mortgage to be slightly concerned when lenders look to pull their credit. There’s an obvious desire to prevent this from happening because people tend to think that this will harm their FICO credit score. Thankfully, credit bureaus are a little savvier and well oiled in comparison to how they may have been run in years gone by. These days, you don’t have to worry about your credit score dropping when a lender pulls your credit. A quick visit to www.myfico.com will highlight the fact that you are protected in this manner.
When it comes to credit inquiry, it is simply a formal process whereby someone requests to view a person’s credit report. The credit inquiry is only a small part of an overall credit score. At present it is believed that this part of the credit scoring process accounts for just ten percent.
Of course, there are a few things to avoid if you do not wish for your credit score to drop while you are looking for a mortgage. Seeking out new credit agreements could potentially harm your overall credit score. This is because new credit is going to increase your level of debt. Naturally, the more debt you have, the more likely you are to default on a particular plan – no matter how good your history is. Technically speaking, a search for new means of debt on your behalf is taken as a threat to all of your lenders at present in the eyes of a credit report.
Of course, a credit inquiry can mean many things and not all of them bad. Generally, credit bureaus will look at four types of inquiries as technically being a search for new credit. These would be a credit check for a motor vehicle loan, a credit check made for the purposes of a credit card application, a check for a mortgage loan and a credit check carried out in order to secure a retail credit card. All four are of course seen in a very different light by credit bureaus. Credit cards are considered bad, but thankfully, credit checks for the purposes of mortgage loans have a marginal impact.
In fact, a mortgage inquiry will lower your FICO credit score by a measly 5 points. The FICO system is based primarily upon your payment history and your credit utilization. 65% weighting is given to these things. 15% is then put against your credit history, and the net 10% regards the type of credit that you maintain. Auto and mortgage loans are regarded positively while credit and store cards are regarded negatively.
This leaves just 10% for new credit. We’re talking about the types of credit you have applied for and how much time has passed since you last started a new credit agreement. Simply put, there’s not much room left for a negative impact from a mortgage application, and should you be approved, the overriding likelihood is that your credit score is going to be positively affected in the future.
Credit scores play a significant role in the loan programs a borrower can qualify for and the interest rate they receive. Contact me if you have questions about your credit and how it may impact your ability to purchase. The great thing about credit is that it’s not static. It can change. With a detailed plan and commitment your scores will improve.