"Will Running My Credit Lower My Score?"

By
Mortgage and Lending with RPM Mortgage, Marin County, CA CA BRE: 01297944
RPM Mortgage in California

 

"Will Running My Credit Lower My Score?"

 

"Will running my credit lower my score?"

I hear this question all the time. Naturally, it’s the buyer or borrower who’s asking and who has been told that by simply making a credit inquiry for a mortgage loan, his or her FICO (Fair, Isaac and Co.) score will be damaged. Too often and unfortunately, this myth is propagated by lenders who would prefer that their potential clients do not shop further for their mortgage needs. 

But what is the correct answer to the question? Of course, it depends on the situation.

When you apply for a mortgage, your loan professional will obtain a mortgage-related credit report. This type of inquiry differs from other consumer credit reports (auto, credit card, etc.) and from the "soft pull" credit monitoring services to which some individuals subscribe. For lending purposes, and depending on the three credit repositories; Equifax, Experian and Transunion, scores will range from 300 to 850, with the higher numbers representing an excellent credit rating. Note that it is extremely rare that anyone ever scores a "perfect" on the FICO test, so don’t be too alarmed if you don’t either!

A key concept to note is that when shopping for a mortgage in a condensed window of time (several weeks), multiple credit inquires often impact the overall score as if it were a single inquiry. The FICO model realizes that shopping for the best mortgage is not inconsistent with smart and effective consumer behavior. The pie chart below shows what’s in a FICO score and it is evident that the inquiry component alone reaches only 10% of a borrower’s total.

 

FICO Chart Mortgage

  

Now that we’ve identified the percentage related to new credit inquiries, let’s also cover the balance of characteristics that make up the whole credit profile. Not surprisingly, 35% of any FICO score is derived from payment history. Over the course of a credit user’s financial life, have obligations been paid on time and according to term? If so, more than a third of the total score is satisfactory. Next are amounts owed, or "balance to limit." Less credit risk is associated with sufficient availability of credit that is not "maxed out." For example, if a credit card user has a $10K limit, and routinely charges balances up to $9900, this will be viewed less favorably than if the same card carrier charged only $500 --- even if both balances are paid on time and in full.

The final third of any credit score is derived from length of history (15%), blend of credit used (10%), and new credit/inquiries, as covered above. When talking about credit history, it is important to note that when borrowers take matters into their own hands, "cut up" their credit cards and cancel unused accounts, they may effectively be sabotaging their own credit history. Of course, most do this unknowingly, but it highlights the fact that when it comes to credit scores --- especially as they relate to your mortgage needs --- it is vital to seek the advice of a professional. I am here to assist you with your credit-related questions and concerns at any time. 

 

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Robert J. Spinosa

Home Loan Professional
BRE: 01297944 NMLS: 22343

1058 Redwood Highway

Mill Valley, CA 94941

877.270.5959 Toll Free
415.367.5959 Cellular
415.366.1590 eFax
rspinosa@rpm-mtg.com


 

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. John McCormack 07/07/2013 09:05 AM
  2. Silvia Dukes PA, REALTOR 07/10/2013 07:13 PM
Topic:
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Show All Comments
Rainmaker
334,861
Marco Giancola
Douglas Elliman Real Estate - Miami Beach, FL
Realtor (305)608-1922, Miami Beach Florida

Hey Rob-That pie chart made it very easy to understand for the consumer to understand-me included!

July 07, 2013 05:20 AM #22
Rainmaker
892,636
Michael Setunsky
Michael's Commercial LLC - Woodbridge, VA
Your Commercial Real Estate Link to Northern VA

Rob, very good explanation. It's interesting how people are penalized on their FICO score by paying off a monthly balance. Seems to encourage debt.

July 07, 2013 06:28 AM #23
Rainmaker
563,472
Corinne Guest
Barrington Realty Company - Barrington, IL
Barrington's Country Suburban Home Matchmaker

I like your pie chart, it's a really simple way to show people who their credit score is made up.

July 07, 2013 06:31 AM #24
Ambassador
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Harry F. D'Elia
Precision Real Estate Inc. - Phoenix, AZ
Investor , Mentor, CSSN, Radio Coach, REOs, ABR

I get asked this question quite often from buyers. Great blog post

July 07, 2013 07:59 AM #25
Rainer
126,223
Dinah Stallworth
Priority Real Estate LLC - 800.978.4847 - Natchitoches, LA
NATCHITOCHES, LA HOMES FOR SALE

Rob,

Great post! I had never seen the break down that makes up the credit score.    I learned something new today, thanks for sharing.  Borrowers need to know this ...

July 07, 2013 08:02 AM #26
Rainmaker
548,839
Gary Frimann
Eagle Ridge Realty / Signature Homes & Estates - Gilroy, CA
California Broker and REALTOR

Rob, I remember the old days when every credit inquiry resulted in points being deducted.  I know this has changed a bit, such as when a consumer goes to a Ford dealer, Chevy Dealer, Toyota Dealer within a rather short period of time...  I think some people are relying on what is now just a rumor that their score will be affected, although this scoring situation is no longer valid as of about 10-15 years ago.

July 07, 2013 08:14 AM #27
Ambassador
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Silvia Dukes PA, REALTOR
Tropic Shores Realty - Ich spreche Deutsch! - Spring Hill, FL
Florida Waterfront and Country Club Living

Rob, thank you for this excellent and in-depth explanations.  Consumers (including me) usually don't know these things or have heard only part of the story.

July 07, 2013 08:30 AM #28
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Praful Thakkar
Keller Williams Realty - Andover, MA
Andover, MA: Andover Luxury Homes For Sale

This one sentence is an 'AHA' for me from your post, Rob - thanks a lot! (this is a mythbuster for many of my buyers!)

multiple credit inquires often impact the overall score as if it were a single inquiry.

July 07, 2013 08:49 AM #29
Rainmaker
973,505
Edward & Celia Maddox
Solutions Real Estate - Queen Creek, AZ
We Take The High Road

Some great information on credit reports and their impact on credit score. Thanks for sharing.

July 07, 2013 09:31 AM #30
Rainmaker
835,070
Tim Lorenz
TIM LORENZ - Elite Home Sales Team - Mission Viejo, CA
949 874-2247

Yes you have to know more and the more you know the better your ability to know what you can and cannot do

July 07, 2013 09:56 AM #31
Rainmaker
1,236,959
Richie Alan Naggar Author PEARLS SERIES of books
People first then business! Ran Right Realty Riverside, Ca - Riverside, CA
on LIFE and LOVE plus Real Estate too!

Relevant and important data for the Real Estate player...good post and thank you

July 07, 2013 10:38 AM #32
Rainmaker
253,698
Rob Spinosa
RPM Mortgage, Marin County, CA - Mill Valley, CA
Marin Mortgage Broker

Thanks for all the great feedback, A/R community.  When writing this post, I sensed I was addressing a topic that was underserved.  And all of the comments prove that.  Once again, glad to return the favor and provide helpful information to those who give so much back to me.

July 07, 2013 11:45 AM #33
Rainer
169,227
Jimmy Faulkner
Florida. Homes Realty & Mortgage - Wantagh, NY
The Best Of St. Augustine

Great informative blog that is necessary to know to be in real estate. You outline how scores happen and you display of it is a big help for a new person to understand, who is a first time buyer.

July 07, 2013 05:50 PM #34
Ambassador
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Ralph Gorgoglione
John Aaroe Group - Los Angeles, CA
California Real Estate (800) 591-6121

Thanks for clearly explaining what for many is a great credit mystery! 

July 07, 2013 05:57 PM #35
Rainmaker
603,608
Barbara Altieri
RealtyQuest, Fairfield and New Haven County CT Homes for Sale and Real Estate - Shelton, CT
REALTOR - Fairfield County CT Real Estate

Rob  -- Great explanation... and it cannot be repeated enough as the average consumer just does not understand it. You're also so right about consulting with a credit pro before doing something like 'cutting up' cards or closing accounts.

July 07, 2013 06:53 PM #36
Rainer
150,525
Jane Chaulklin-Schott
TEAMCONNECT REALTY - (407) 394-9766 - Orlando, FL
TeamConnect Luxury Homes - Orlando, Florida, 32836

Good explanatory post, Rob and with a relevant pie chart.

July 07, 2013 07:51 PM #37
Rainmaker
659,205
Aaron Hofmann
Atlanta Communities - Smyrna, GA
aka Mr. Smyrna Vinings

We definitely get that question a lot. Probably more from buyers that know they have a bad credit score than those that have a good one. I think it has more with procrastination and not wanting to know just how bad their score may be. But I always explain the sooner their credit report is pulled, the more time they will have to fix things if necessary.

July 08, 2013 01:42 AM #38
Rainer
19,459
Charles Bradford
Caliber Home Loans, Inc. - Indianapolis, IN

Clear and concise.  This would make a great "handout" piece.  Thanks for sharing Rob!!

July 08, 2013 11:26 AM #39
Rainmaker
1,048,523
Endre Barath, Jr.
Berkshire Hathaway HomeServices - Beverly Hills, CA
Realtor - Los Angeles Home Sales 310.486.1002

Rob as always you are so on top of the Mortgage questions...on a side not how it the Tour De France coming along?, Endre

July 10, 2013 11:39 PM #40
Rainmaker
253,698
Rob Spinosa
RPM Mortgage, Marin County, CA - Mill Valley, CA
Marin Mortgage Broker

Thanks, Endre!  So far, in both the mortgage world, and Le Tour, I have managed to avoid the crashes....  :-)

July 11, 2013 06:57 AM #41
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Rob Spinosa

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