Greensboro Home Buyers, Avoid Unnecessary Credit Dings While Home Loan Shopping

photo credit: homesbythomas

Rarely a week goes by that I’m not asked about credit scores and how they are effected by shopping around to get the best deal on a home loan.  Clients want to know how their credit score will be effected if they compare rates and fees with several Greensboro mortgage lenders.  Will all those credit inquiries hurt a person’s score?  Unfortunately the answer is…it’s complicated, although I will list a few good rules of thumb below to simplify it a bit.

Credit agencies can look at multiple inquiries two ways, they can see a consumer shopping to get the best deal and they can also see a consumer desperate for a loan after being denied and trying every place in town.  The challenge for the credit agencies is that it’s sometimes hard for them to tell the difference.

They solve this issue by giving a consumer 30 days to shop around for a mortgage.  This is called the “ignore” rule and states that inquiries for mortgage loans will be ignored 30 days previous to the current mortgage loan inquiry.  This is a good thing but if you’re a shopper on the credit score edge (in terms of qualifying or not) beware.  It’s common practice for home loan providers to pull a score again just before closing to make sure nothing has changed.  So if it’s been more than 30 days since the buyer started the loan process, those inquiries can hurt the score.  If the score is then dropped below the acceptable threshold, the buyer can still be denied the home loan even at the last minute.

So how does a home buyer protect a fragile score?  Here are a few tips:

1) Request your own credit report.  This can be done for free at AnnualCreditReport.com.  Self inquiries do not harm your credit score.  You can then provide a copy of your credit report to potential lenders and authorize them to pull credit once you’ve chosen who you’d like to use.

2) Stick to the home loan.  Don’t apply for new credit cards, buy furniture on credit, or apply for an auto loan while going through the mortgage process.  These types of inquiries do not fall under the ignore rule.

3) The 30 day rule may not be 100% accurate.  If you apply for a home loan with a credit union, a finance company, and a mortgage company, these inquires can sometimes be confused depending on the companies reporting practices.  If one of these inquiries is coded as other than a mortgage loan then the 30 day ignore rule would not apply.  This is a credit reporting mistake which can probably be corrected, but I assume it’s easier to just to avoid it in the first place by pulling your own report.