Does Pulling My Credit Multiple Times Harm My Credit Scores
This is a relatively common question consumers have especially as it relates to shopping for a home loan and they’re sensitive to their credit rating as well as their scores. It’s interesting to note here that during the loan application process lenders review a credit report as well as credit scores. Most all loan programs today require a minimum score and when someone is not sure about their current credit situation or they’re looking to get the best deal possible they want to have the highest score they can get. How are scores calculated and does pulling credit really harm scores?
FICO scores, those three digit scores that range from 300 to 850 are so-called because the algorithm used to calculate these scores was in fact originally developed by The FICO Company. Higher scores typically receive more favorable loan terms than lower scores, especially in connection with a low down payment loan. There are three main credit repositories, Equifax, Experian and TransUnion who each use the same algorithm. Lenders request a score from each one of them. The scores are typically very similar. For instance, scores could be something like 742, 749 and 734, with lenders using the middle of the three for qualifying purposes.
There are five categories that make up the score. Payment history accounts for 35% of the score and chronicles timely payments. When payments are made on time, scores will rise. Account balances should also be somewhere near 30% of current credit limits and contributes 30% toward the score. There are three others, types of credit used, how long someone has used credit and finally, credit inquiries, making up the final 35% of the total. Of this, credit inquiries account for 10% of the total score. And this is what consumers who shop for a mortgage might be concerned about. When someone requests credit multiple times in a relatively short period of time, scores can falter. However, this rule applies to someone who is not only applying for credit from multiple sources but also, and this is important, for different types of credit.
For example, within the past 30 days, a consumer has applied for a new credit card, an automobile loan, a gas station credit card and financed a brand new washer and dryer. This is a request for credit from four different types of credit.
On the other hand, someone else applied at four different mortgage companies. But in this scenario, the consumer is shopping for a mortgage for a single transaction and not for various credit accounts. FICO scores will not be harmed based upon applying for credit at multiple sources. It’s all for the very same transaction yet the consumer has yet to choose which lender they’re going to use or they’re applying for a loan that not all lenders offer.
If this sounds familiar or you’ve applied for a loan at another mortgage company but are not satisfied and want to switch, applying with us won’t ding your score.