When you’re shopping for a mortgage, it makes sense to seek a pre-approval from multiple lenders so you’ll know you’re getting the best deal you can. But applying for a mortgage can have an effect on your credit score. Here’s what you need to know: Your Credit History and Credit Scores The three credit bureaus—Equifax, TransUnion and Experian—keep a record of your credit history. That credit history is used to calculate two different credit scores: your FICO credit score and your VantageScore. Developed by the Fair Isaac Corporation, your FICO credit score ranges from 300 to 850. Whether you pay your bills on time and how much debt you carry are factors that can have a big effect on your FICO credit score. Other factors, such as how many times you’ve applied for credit lines or loans, have a smaller impact on your credit score. While the FICO credit score is more common, lenders may also use the VantageScore. VantageScore 3.0, developed by Experian, also uses the 300 to 850 range as well as a letter grade for your credit score. Applying for a mortgage pre-approval will have a small effect on your VantageScore. How Lenders Use Your Credit When you apply for a mortgage pre-approval, the lender will pull copies of your credit reports and credit scores from one to all three credit bureaus. The lender will evaluate your history and scores to determine whether to approve you and what amounts and terms you qualify for. Once you apply, any credit bureau the lender used to order your credit report or scores will add an inquiry to your credit history, even if you do not qualify for the loan. If you do qualify and decide to accept the loan, the lender will likely pull your credit scores again before closing on your loan to make sure no major changes have occurred. Exceptions to the Rule When home buyers are looking for a mortgage, it is common to shop around between several lenders. The credit bureaus understand this and take it in to account. Under the FICO credit score model, all inquiries made within 30 days are lumped into one to give you time to compare different pre-approval offers. That means only one inquiry will affect your credit score. Under the VantageScore model, all inquiries within a 14-day period are grouped together and are counted as one credit inquiry on your score.
Posted on: Thu, 05 Jun 2014 13:20:12 +0000