Avoid a Great Credit Score Ding
When a buyer applies for refinancing or purchase of a home, potential lenders and mortgage brokers will check his credit scores.
Each time it gets verified, credit scores may pull down.
When lenders and brokers learned that the buyer is in need of money and these firms check his credit for application process it is called "hard pull" inquiry.
A credit score is pulled from one of the three credit bureaus as part of a loan application which can have a chance of decline by 20 points or more.
It is commonly called Great Credit Score Ding.
According to Paul Stephens, the director of policy and advocacy for Privacy Rights Clearinghouse, most of the buyers are unaware on how credit scores are calculated and what to do about it.
Credit score is also referred to as FICO score, a figure ranging from 300 to 850 that is based on algorithms given by FICO.
These algorithms are in turn sold to Equifax, Experian and TransUnion the three credit bureaus which use an individually different formula to calculate consumer's creditworthiness.
Those who have gotten high credit scores are most likely to obtain the most favorable interest rates.
For mortgage debtors, the average score is 750, according to the Federal Housing Finance Agency, a firm that oversees Fannie Mae and Freddie Mac, the government-sponsored companies that set underwriting standards.
According to Rod Griffin, Experian's public education director, these credit bureaus can choose to drop 20 points or more from your FICO every time the buyer authorizes a lender to check it.
The average ding for a "hard pull" at TransUnion is five points, said Steven R.
Katz, senior director of corporate communications of TransUnion.
The impact on FICO scores lasts only for one year, while credit inquiries stay on a borrower's credit report for two years.
To avoid accumulating negative points due to the requests of the three bureaus, all requests must be made within a short time to be counted as only one check.
For Experian and TransUnion, they count all credit score checks as one if made within 14 to 30 days, depending on which FICO algorithm they use.
According to Jennifer Costello, the company's spokeswoman, Equifax generally treats credit checks as one request if made within 30 days.
That time frame may seem too short a period but buyers should not wait for several months in hopes that rates will go down further.
According to Patrick Ritchie, the author of "The Credit Road Map" buyers have basically 15 days to go to various lenders and get quotes.
Borrowers may request creditworthiness estimates and loan rates without the risk of credit score ding through a "soft pull.
" A formal inquiry can also be done, when a buyer asks prospective lenders to do a soft pull before deciding which loan to avail.
However, it is advised not try applying for other loans or credit cards when you apply for a mortgage because all those applications are counted as separate checks in getting "hard pulls.
" Solid borrowers should not fret about the impact of credit checks whether it is a hard pull or a soft pull, said Mr.
Griffin of Experian.
Borrowers with lower credit scores, which may further decline every time it gets checked, may also find it riskier with a chance of being denied of the loan.
Each time it gets verified, credit scores may pull down.
When lenders and brokers learned that the buyer is in need of money and these firms check his credit for application process it is called "hard pull" inquiry.
A credit score is pulled from one of the three credit bureaus as part of a loan application which can have a chance of decline by 20 points or more.
It is commonly called Great Credit Score Ding.
According to Paul Stephens, the director of policy and advocacy for Privacy Rights Clearinghouse, most of the buyers are unaware on how credit scores are calculated and what to do about it.
Credit score is also referred to as FICO score, a figure ranging from 300 to 850 that is based on algorithms given by FICO.
These algorithms are in turn sold to Equifax, Experian and TransUnion the three credit bureaus which use an individually different formula to calculate consumer's creditworthiness.
Those who have gotten high credit scores are most likely to obtain the most favorable interest rates.
For mortgage debtors, the average score is 750, according to the Federal Housing Finance Agency, a firm that oversees Fannie Mae and Freddie Mac, the government-sponsored companies that set underwriting standards.
According to Rod Griffin, Experian's public education director, these credit bureaus can choose to drop 20 points or more from your FICO every time the buyer authorizes a lender to check it.
The average ding for a "hard pull" at TransUnion is five points, said Steven R.
Katz, senior director of corporate communications of TransUnion.
The impact on FICO scores lasts only for one year, while credit inquiries stay on a borrower's credit report for two years.
To avoid accumulating negative points due to the requests of the three bureaus, all requests must be made within a short time to be counted as only one check.
For Experian and TransUnion, they count all credit score checks as one if made within 14 to 30 days, depending on which FICO algorithm they use.
According to Jennifer Costello, the company's spokeswoman, Equifax generally treats credit checks as one request if made within 30 days.
That time frame may seem too short a period but buyers should not wait for several months in hopes that rates will go down further.
According to Patrick Ritchie, the author of "The Credit Road Map" buyers have basically 15 days to go to various lenders and get quotes.
Borrowers may request creditworthiness estimates and loan rates without the risk of credit score ding through a "soft pull.
" A formal inquiry can also be done, when a buyer asks prospective lenders to do a soft pull before deciding which loan to avail.
However, it is advised not try applying for other loans or credit cards when you apply for a mortgage because all those applications are counted as separate checks in getting "hard pulls.
" Solid borrowers should not fret about the impact of credit checks whether it is a hard pull or a soft pull, said Mr.
Griffin of Experian.
Borrowers with lower credit scores, which may further decline every time it gets checked, may also find it riskier with a chance of being denied of the loan.
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