Does Pulling Credit Hurt My Score?
I’m going to have to have a talk with my ole Boss James’ life coach. Apparently the ole Boss was up “working” til past 3 AM last night because he tried to email me and ended up posting a comment on my Party Poopers post, complete with email signature and everything. And I’m pretty sure his life coach gave him a strict bedtime. Until I make that call, we’ve got an important issue to discuss.
Sometimes we have nice folks call the office who are shopping around for a mortgage. Because the Internet has evilly and inaccurately convinced people that all they have to do is call a mortgage bank and ask, “What’s your rate?” many people don’t understand everything that goes into providing clients with accurate interest rates and monthly payments on home loans. All that to say, my Bosses love to provide clients with rates and such, but first must get a little information from them. And one very valuable piece of information is your credit score.
See, your credit score plays a big role in what interest rate you qualify for. And, pulling your credit gives you a heads up if there are any credit problems you need to fix (see this post for more details on that, and see this post for why the free credit checking services can be a bit misleading). And everybody has the same reason for not wanting their credit pulled – they are afraid that if while shopping for a mortgage their credit is pulled multiple times, it will lower their credit score.
Well, I’ve got good news – it doesn’t! Below, some great FAQs from MyFico.com
Will my FICO score drop if I apply for new credit?
If it does, it probably won’t drop much. If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time. Typically, these are treated as a single inquiry and will have little impact on the credit score
So, applying for seven credit cards while on a shopping spree the day after Thanksgiving? Maybe not your best move. Having your credit pulled so that your very friendly mortgage banker Chad Helmcamp (James is still grumpy this week, but usually their moods are in reverse of one another, so if you call next week, call James) wants to provide you with an accurate mortgage interest rate? Smart move!
Here’s another nugget:
Does the formula treat all credit inquiries the same?
No. Research has indicated that the FICO score is more predictive when it treats loans that commonly involve rate-shopping, such as mortgage, auto and student loans, in a different way. For these types of loans, the FICO score ignores inquiries made in the 30 days prior to scoring. So, if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping. In addition, the score looks on your credit report for rate-shopping inquiries older than 30 days. If it finds some, it counts those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.
So don’t be afraid to obtain an accurate interest rate, one that involves providing a bit of information to your mortgage banker. I personally don’t think you need to “shop” mortgage bankers and rates because James Beaver and Chad Helmcamp are the best in the business and provide everyone with affordable, honest home loans, so you can save yourself some time and just go with them. After that, when you’re all settled into your charming Houston bungalow that involves no landlord and no rising rental rates, you go take out as many Nordstrom cards as your heart desires.
If you’d like to know more about interest rates, email me, or comment below and treat it like an email. I promise I won’t tell your life coach.