If you are hesitant to apply for a mortgage because you think your credit score will drop, think again. Here is what happens when you apply for a mortgage and get your credit pulled…
Many online articles would have you believe your credit score automatically drops when you apply for a loan. This is not iron clad. When you apply for a mortgage you must have your credit checked. It is the only way a mortgage company can really determine whether not you can qualify for financing and what your rates and fees will be like. Getting rate quotes from the mortgage companies without a credit check can be setting yourself up for disappointment especially if your actual score is different than what you think it us.
Credit shopping
Be informed not all credit reports are created equal. For example if your auto lender credit score is 740 and your mortgage company score is 720 your credit score is 720. A financial services credit report is by far more accurate than any credit report you will receive from any other source because it intended for the biggest form a credit available-a mortgage loan.
If you are applying for multiple forms of credit at the same time such as a credit card, a mortgage, an auto loan for example and a utility bill for example then such actions will negatively impact your credit score because it sends a signal to the credit bureaus you are having difficulty managing credit will may lead to a late payment in some cases. In other words apply for one form of credit one at a time and keep the time between each credit inquiry to 60 days or under.
Time of the month
This one is probably the most common reason why it may seem like your credit score dropped. Each creditor you do business with reports to the bureaus at different times of the month. There is no way to accurately pinpoint the best time to pull a mortgage credit report in relationship to when your creditors report to the bureaus. This means it is reasonable that your credit score could be different from one month to another simply because of when your creditors report.
How it breaks down
If your credit score is anything over 700-740 and your credit score drops two or three points because of a credit disparity it may prove to end being nothing to worry about. If your credit score is anything from 660 to 699, same thing it’s not going to cause much change in your mortgage rate and pricing on Conventional and FHA mortgages. Scores do set the benchmark for the type of mortgage loan program you can get especially if you’re looking for a Jumbo mortgage which across the board is 680. If your credit score is 620 to 640, you are still going to be looking in the FHA mortgage loan category anyway as conventional loans in this category automatically hit high cost thresholds.
In most cases any change in credit score through or through no fault of your own will not radically change the mortgage loan program that you’re trying to qualify for in most instances. Additionally, any change in the credit score only change the pricing on the loan typically by about 13 to 20 basis points of the loan amount which may result in more fees. This means a 400k home loan would incur $800 more in fees (400,000 x .20). If you are looking for mortgage generally having your credit score ran does hurt your credit score and is necessary for refinancing your home or buying another one.
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