When you begin preparing for a mortgage, one of the first steps you’ll take is to check your credit. Whether you pull the credit report yourself or a loan officer pulls the report on your behalf, you’ll need to know how this action will impact your score.
Unfortunately, many people avoid checking their credit because they worry it will lower their score. But the truth is, this action rarely decreases your score, and most credit checks (especially “soft” credit checks, which we will explain) won’t drop your score at all.
Credit Checks for a Mortgage: You Don’t Need to Worry About Rising Scores
The Exaggerations Behind Credit Checks for a Mortgage and Rising Scores
The assumption that credit checks and credit inquiries will lower your score is not exactly a myth. It’s true that certain credit checks can and will harm your score, but this truth has been greatly exaggerated, to the point that some people are afraid to even look at their credit score under the assumption that their score will drop significantly.
But the truth is simple: the vast majority of credit inquiries will not lower your score.
This is especially true on credit checks for a mortgage.
Let’s explore the reality. Your credit score is, essentially, a numerical statement of your ability to handle debt. Of course, the three major credit bureaus, which include Experian, TransUnion, and Equifax, can’t explore the fine details of everyone life to determine their trustworthiness as a borrower. They have to look at large, over-arching factors and use statistical data, doing their best to use broad information to determine someone’s ability to borrow and repay.
Certain behaviors increase the likelihood that someone will repay their loans in the future. Paying off loans and making timely payments in the past, for example, increases your probability of making timely payments in the future. Having a well-established credit history, with years of handling debt, is also an indication that you are a reliable borrower.
Other behaviors increase your chances of having problems with loan payments. Taking on a new job, especially a position in a new industry, creates more risk compared to staying in your career. (This is true even if you are making more money.)
Another behavior that creates risk is rapid, numerous credit checks in a short period. If someone is making abundant credit checks in a short time, they are likely taking on numerous loan. And the more loans someone has, the more chance they have for loan default. FICO says that “people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports.” So if you have lots of checks, you’re a higher risk to lenders.
If the credit bureaus see numerous credit inquiries is a short period, they will lower someone’s score.
But not all credit checks are created equal…
“Hard” vs “Soft” Credit Inquiries
In the credit industry, there are essentially two types of credit inquiries: “hard” and “soft.” Each one has a different impact on your score. More accurately, only one creates any real change in your score.
Hard inquiries are the credit checks that you need to worry about if you are concerned about your score. These inquiries show that you are applying for new debt, like a mortgage or a personal loan. They could also indicate that you are applying for a credit card.
Hard inquiries happen when you apply for certain jobs, set up new utility services, apply for insurance, or complete a background check. They happen when you request a line of credit or use a debit card to pay for a car rental.
Multiple, rapid-fire hard inquiries can create a drop in your credit score.
Soft credit inquiries are different and have no impact on your credit score. These happen any time you check your credit or get a free credit report. They are recorded when a company pulls your credit for pre-approval. These inquiries are only visible to you and the credit bureau.
Credit Checks for a Mortgage Don’t Have to Lower Your Score!
To fully understand why our credit checks for a mortgage do not enhance your overall score, it help to look at our process. Many banks, including ours, can perform soft credit inquiries or pre-qualification credit checks. This allows us to pull your credit report without creating a drop in your overall credit score.
With our system, there will be two versions of the pre-qualification credit report:
- First is the FNMA (Fannie Mae) pre-qualification credit check. This is simply a soft-pull credit report that only pulls your score from TransUnion. This check can be used to run automated findings, which essentially makes the process easier and faster.
- The other report that comes available through our process is the full pre-qualification. This is a soft-pull credit inquiry that pulls reports from all three credit bureaus. This step is useful for getting a basic understanding of your credit profile, but unfortunately cannot be used to run an automated approval.
During mortgage pre-qualification, we only perform a soft credit. This means that you can come to us while you are shopping for homes (or before) and get a credit report and mortgage estimate from our team. You can “shop around” so to speak, and find the best mortgage for your specific needs. With soft credit inquiries, we are able to find the best mortgage for your needs without putting your credit score at risk.
If you have any questions on credit checks for a mortgage and their impact on your credit score, please contact use today. When you are ready to complete an application while using a soft credit inquiry, we are ready to help.
Contact our team and we’ll make sure you have the dedicated support you deserve for your next mortgage application!
