Who pulls your credit can impact the credit score

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Really?!? Can the company pulling a copy of your credit impact the credit score? The answer is yes, it can impact the score. The better question now is “why”? The reason is simple. Each credit bureau has a different formula they use for determining a score.

Beyond that, each bureau has different versions of each of their formulas. For example, according to www.myfico.com*, one of the formulas FICO uses when someone is rate shopping (for a mortgage, car loan, student loan, etc.) ignores all inquiries within the past 30 days. Rate shopping is treated differently than when applying for a credit card. Credit card companies disclose their rate up front, so there is no need for rate shopping. Recent inquiries to different credit card companies may not be ignored and can have a negative impact on your credit score.

* the mortgage blog does not endorse www.myfico.com, but used information from their consumer credit information section of the website as an example for this post.

This is important to remember when you are in the planning stages of purchasing a home. Even though the credit card company that recently approved you for a new card said you had an 800 credit score, it doesn’t mean your credit score will be 800 when applying for a mortgage.

In addition to the industry you are applying for credit, there are additional factors that influence your credit scores. Here are a few examples:

  • the more recently you opened a credit account, the more of a negative impact it can have on a credit score
  • once you pass the halfway point of your available credit on a credit card, your scores are negatively impacted. Let’s say you have a $5,000 limit, and have charged $2,600. Once you pass $2,500, your credit scores are negatively affected.
  • this impact is greater as you move closer and closer to maxing out your credit card(s)
  • the number of recent inquiries into your credit report by various creditors can negatively impact your score

This brings us back to an important point that isn’t a recording, but should be… planning ahead is key. If you are looking to make a home purchase in the next year, ensuring everything is in order now is better than finding out there is a problem the day you are ready to make an offer on your new home. Talking with a mortgage professional to review your credit, income, assets, and more is essential to help the mortgage process to run as smoothly as possible.

If you are looking to buy a home (primary residence, second home, or investment property) in the state of Georgia, I can help you get started.

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