One of the first steps in applying for a loan is having a home loan lender check your credit to see what you’d qualify for. What does that mean and what impact will it have on your credit score?
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Your lender will see your credit report
You begin building your credit history with your first credit card or loan. The history of how you handle your credit builds your credit report. Your home lender will request a copy of your credit report from one of the three major credit reporting bureaus – Equifax, Experian, or TransUnion. Their report includes the following about your credit:
Personal identifiable information – As example, your social security number, date of birth, name, and employment information. This is used to verify your identity.
Credit accounts – A list of any credit accounts you have. This includes credit cards, auto loans, mortgages, student loans, etc. Your report shows the date you took out credit, the credit limit or loan amount, your payment history, the account balance, and whether you’ve made payments on time.
If any of your accounts went into collection (even if they weren’t credit accounts), there will be a record of it on your report for seven years. Paying off the debt will not remove the record from your report faster.
Credit inquiries – A list of times when companies have pulled your credit history. Only those made in the past two years remain on your report and only those done within the last year impact your credit score.
Public records – A list of instances of bankruptcy. Chapter 7 bankruptcy remains on your report for ten years and Chapter 13 will remain for seven.
Your credit will take a small hit
When your home lender requests a copy of your credit report from a credit bureau, it indicates to the credit bureau you’re looking to take on additional debt. It results in a small negative impact on your score – usually five points or less. It’s an unavoidable part of getting a home loan and your score will bounce back again in a few months.
Don’t let this small hit on your credit keep you from contacting other lenders to find a better rate or home loan term. Within a 30-day window, you can have other home lenders pull your credit report without it impacting your score again. Credit bureaus know it’s a good idea for consumers to shop around to find the best rate, so they won’t penalize you for it.
You’ll get unsolicited credit offers
It’s common to start receiving phone calls or letters from other lenders after your credit report is pulled. How did these other lenders know you were looking for a loan and why are they contacting you?
When your home lender requests a copy of your credit report, it alerts the credit bureau that you’re looking for a loan and they turn this knowledge into a commodity. Within 24 hours, the credit bureau will sell information about you and the loan you’re applying for to lending agencies. They can provide your name, address, credit score, and type of loan you applied for.
Some lenders will buy your information (called a trigger lead) from the credit bureau if, based on your data, they would like to do business with you. They will call, email, or mail you their own mortgage offer which may be better than the one your lender is giving you. In theory, the more offers you get, the more likely it is that you’ll get a good deal. That’s why selling and buying trigger leads is legal in all 50 states.
Mann Mortgage has made the decision not to purchase trigger leads for our competitors’ customers. We feel it’s an invasion of privacy that can expose people to identify theft. If you are currently working with Mann Mortgage and have any questions about the offers you receive or who an offer came from, please contact your Mann Mortgage lender right away. They will be able to help you.
Remember – your credit score is only part of your loan application
Your credit score and history are important components of your home lender’s decision on whether to extend credit to you. They’ll also consider the length of your credit, your down payment, your debt-to-income ratio, your total assets, and your current income. Your lender will take a holistic view of your financial situation to determine whether they’ll extend credit to you.
>> Once a year, you can check your own credit score for free and without negatively impacting it at Annual Credit Report.com.
When you’re ready to get a home loan, contact your local Mann Mortgage home loan experts. In addition to going over your credit and loan eligibility, they’ll get to know you and answer any questions you have about financing the right home for your needs.