When you’re planning to purchase a new home, you naturally want your FICO credit score to be as high as possible. As a result, you may be getting plenty of advice on what to do and what not to do.
You’ve heard that every inquiry into your credit can lower your scores.
That’s only partially true.
Checking your own credit does no harm at all, as long as you order your credit reports through an organization authorized to provide reports to consumers. Today some banks offer their customers instant access to credit reports and even alert consumers to big changes in their scores. It’s a good idea to check your credit reports regularly, if no other reason than as an early warning of identity theft.
Note that the scores they provide may not be accurate with regard to your FICO scores. The FICO score is specifically used in mortgage lending. Different scoring formulas are used by credit card companies, insurance agencies, car dealerships, etc. However, they’re all a fair indicator of your credit worthiness.
Credit inquiries made by companies that are considering offering you credit also do not lower your scores. You’ll still see these inquiries on your credit report, however.
Credit inquiries made in response to your application for credit will reduce your scores.
While the impact on each person is different based on their unique credit history, for most a single inquiry will take less than 5 points from their FICO scores.
Multiple credit card inquiries or the fact of opening several credit accounts in a short period of time CAN do significant harm. This action labels you as a poor credit risk. Statistics show that those who apply for 6 or more credit lines within a short period of time are up to 8 times more likely to declare bankruptcy than those who have made no new credit applications.
However – there is an exception to this.
Credit bureaus and lenders recognize the fact that consumers do (and should) shop for rates. With this in mind, inquiries from multiple mortgage lenders, automobile dealers, or student loan lenders all made within a short period of time will be treated as a single inquiry. A “short period” can be anywhere from 14 to 45 days, depending upon which FICO scoring formula your lender wants the credit agency to use.
Credit inquiries play but a small part in your overall FICO scores.
More important factors are your bill-paying history and your percentage of debt to credit available.
That being the case, do pay all of your bills on time and do keep balances low on credit cards and other revolving credit accounts. Many experts suggest that your credit card balances should stay below 30% of your available credit.
Open new accounts only as needed, but do not close old accounts. Instead, use them occasionally and pay the balances when due.
If you want to buy a home in the near future and aren’t sure how you stand, call us at Homewood Mortgage, the Mike Clover Group. We’ll be glad to talk with you about your situation, look at the credit report you’ve obtained, and make suggestions for getting your credit scores in top shape before you begin shopping.
Call us today at 800-223-7409
If you know you’re ready, you can either call or
Apply on line at www.mikeclover.com.