Credit Analysis – what NOT to do.
Sometimes it’s the little things in life that can make all the difference.
A small ding to your credit score can drop it just enough from being in the excellent credit score range to the good score range. That can be enough to cause lenders to charge you higher interest rates, costing you money that you might otherwise save without the small nick on your credit score.
Inquiries, or new credit, account for about 10 percent of a FICO credit score. While that isn’t much when compared to payment history accounting for 35 percent of a FICO score, a credit score drop of up to 10 percent for having too many lenders look at your credit score can be enough to cost you real money in the long run.
An example of a hard inquiry is when you apply for a credit card and the issuer “pulls” your credit report from one of the three major credit bureaus. The hard inquiry may lower your score up to five points, depending on the rest of your credit profile. Going months between credit inquiries can have less of an impact than having a bunch at the same time.
Applying for a mortgage is another hard inquiry. The FICO score allows mortgage rate shopping, so applying with four different mortgage lenders in 45 days is counted as only one hard inquiry.
What we see the most when looking at credit reports for mortgage applications:
- Inquiries affecting the score – if you have had multiple inquiries in the last 6 months time period we typically see a drop in credit score. This is also a red flag to mortgage underwriters as they assume you are living beyond your means and trying to take out multiple lines of credit.
- 30 day late payments affecting score – if you have had any 30 day late payments or new collection accounts in the most recent 12 months, we see these can significantly drop a credit score. We may need to work with you on some items for a few months before getting you qualified to for a loan. However, that is not always the case.
Remember, if you are thinking of buying a home in the next few months, or refinancing out of a high interest rate loan, do not apply for new credit and do not pay any bills 30+ days past the due date. Talk to a certified mortgage planner today, learn more.
If you have any specific questions regarding your credit profile that you would like to discuss with us for more clarity, you can schedule a quick call with us using this LINK.