I get this question daily from my prospective buyers. “Do you have to pull my credit? I don’t want you to hurt my score that I have worked so hard to maintain.” A great question for today’s home buyers and refinancing households, the value of “good credit” has never been higher.
Years ago, that concern made more sense. Today, it doesn’t, because having a mortgage company pull your credit is very different from having Walmart do it.
Having a lender pull your credit for the purpose of qualifying you for a mortgage will have little to no effect on your score. The bureaus are very clear – your credit scores won’t drop when you have multiple lenders pull your credit within a 14-day period (click link for more detail).
Advice : How To Shop Multiple Lenders Without Hurting Your Scores and Obtain The Best Rates
The credit reporting agencies understand that it’s in your best interest and theirs to allow you this time to shop for the best rate. Your score might go down 5 points or so, but have it pulled as many times as you wish in that 14-day period and it will not go down any further. And the bureaus love you for it, because they receive more fees from the bank. They love the profit! So, it’s a win-win for both of you.
Applying common sense: You could apply for 3 credit cards and that would have an immediate impact in driving your scores down. But applying for 3 mortgages, the bureaus understand that you will only obtain one mortgage.
Also, don’t be shy about giving up your social security number so lenders can give you an accurate quote. By not allowing them to pull your credit, It’s akin to going to the doctor and not letting them check your blood pressure or not sticking that annoying piece of wood on your tongue – They can’t help you without the right information.
Tips to Keep Your Scores Low
If you’re shopping for a home in California, or contemplating a refinance, be aware of how everyday credit behaviors can affect your FICO. Even small events can make a big impact.
Here are some common-sense steps to help improve your credit score.
First, keep a “cushion” on your credit cards.
30 percent of your credit score is linked to “Amount Owed” and a big part of Amount Owed is a raw calculation of (1) What you owe in dollar terms, against (2) How much credit you have at your disposal. The credit bureaus want to see at least 70% of your credit “available”.
If you can keep your cards at least 70% available, your credit scores should improve.
For example, if all of your credit cards give you access to a combined $50,000 and you are using $10,000 of that available credit, you have 80% of your credit available to you and this is “good”.
Raise your balances to $30,000 and this is “bad”.
Second, don’t make major purchases on credit before making a mortgage application. This includes opening a store charge card to save 10 percent or more on a washer/dryer set, for example; or for any other appliance or furniture piece.
The reasons why are two-fold. One, store charge cards are often opened with a limit matching your initial charge, rendering them 100% utilized. This is bad for a FICO, as discussed above. And, two, opening a new charge cards has a negative FICO impact anyway.
Charge cards are associated with high default rates.
Third, make all of your monthly payments on time — even the ones in dispute. You may not want to pay that $80 wireless phone bill, for example; the one that you think you owe, but remember that Payment History accounts for 35% of your credit score. Even one late payment — or payment in collection — and your credit score can drop.
It’s often less expensive to pay a bill in dispute than to be relegated to a higher mortgage rate. The payment is dispute is remedied today. The payment on that mortgage rate lasts for 30 years.
In addition, if you are in need of a few pointers to improve your scores, call me and we can review a more detailed analysis of tricks and methods we have learned over the years. Also, we work with some very talented and local credit specialist that we can refer you to as well. You would be surprised at the big difference a small change can make.