The Myth About Multiple Credit Checks

May 21, 2018 By , , ,

The Myth: Multiple Credit Pulls Will Drop a Borrower’s Core

We know exactly what it’s like…diving into the unfamiliar territory of getting a mortgage, and wanting to make the best decision for your financial future. You may be concerned about your credit and you’ve heard the myth that having your credit checked more than once will immediately lower your score.

We want to put your mind to rest. The truth: three major credit bureaus (Experian, TransUnion, and Equifax) put it plainly – credit scores will not drop when a mortgage lender pulls their credit more than once.

Mortgage Inquiries are a Small Part of Your Credit Picture

In its purest definition, a “credit inquiry” is a formal request to review a credit report. This is considered “New Credit,” and makes up just about 10% of a person’s overall credit score. The reason this may affect a credit score is because it’s a specific request to increase a person’s level of debt and taking on additional levels of debt increases the probability of a default.

Mortgage lenders evaluate credit using the FICO scoring model. The FICO model is made up of 5 different factors which rank credit scores from 300-850.

What makes up a credit score?

3 Tips to Help Improve Your Credit Score

 

 

 

  1. Payment History – 35%
  2. Amount Owed – 30%
  3. Length of credit history – 15%
  4. Type of credit maintained – 10%
  5. New credit (credit inquiries) – 10%

A Credit check for a mortgage is just one small element within the larger credit-scoring category, “New Credit”.

 

 

Not All Credit Checks are Weighted Equally

A credit card application carries more weight on credit than a mortgage loan because credit card debts have the tendency to increase in balance over time, which will weaken someone’s credit position, in turn, they are seen as a negative. Mortgage debt, by contrast, eventually pays down to $0, so mortgage loan checks don’t have as much weight on a person’s overall score, in turn, they are seen as a positive to the bureaus.

Types of credit inquiries:

  • Mortgage loan
  • Auto loan
  • Credit card application
  • Store credit card or consumer loan

Shopping Around Won’t Hurt

The most important takeaway from this idea is that when shopping for mortgage rates, multiple credit inquiries won’t penalize potential buyers.

The Catch?

Here’s the catch, it’s best for a client to sort out their shopping for a mortgage within a limited, 14-day time frame. If you manage the inquiries are properly, the credit bureaus will acknowledge the first credit pull, but will ignore each following check.

Don’t believe the myths. Credit inquiries are manageable and shouldn’t affect your plans.

Contact us with any questions or concerns about your credit score and mortgage.

 

PRM is not a credit counselor, please consult a credit professional with any credit questions.
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