October 29th, 2014 8:22 AM by Jackie A. Graves
shopping for a mortgage, it makes sense to seek a pre-approval from multiple
lenders so you’ll know you’re getting the best deal you can. But applying for a
mortgage can have an effect on your credit score.
Here’s what you need to know:
History and Credit Scores
The three credit bureaus—Equifax,
TransUnion and Experian—keep a record of your credit history. That
credit history is used to calculate two different credit scores: your FICO credit
score and your VantageScore.
Developed by the Fair Isaac
Corporation, your FICO credit score ranges from 300 to 850. Whether you pay
your bills on time and how much debt you carry are factors that can have a big
effect on your FICO credit score. Other factors, such as how many times you’ve
applied for credit lines or loans, have a smaller impact on your credit score.
While the FICO credit score is more
common, lenders may also use the VantageScore.
VantageScore 3.0, developed by
Experian, also uses the 300 to 850 range as well as a letter grade for your
credit score. Applying for a mortgage pre-approval will have a small effect on
Use Your Credit
When you apply
for a mortgage pre-approval, the lender will pull copies of your
credit reports and credit scores from one to all three credit bureaus. The
lender will evaluate your history and scores to determine whether to approve
you and what amounts and terms you qualify for.
Once you apply any credit bureau
the lender used to order your credit report or scores will add an inquiry to
your credit history, even if you do not qualify for the loan.
If you do qualify and decide to
accept the loan, the lender will likely pull your credit scores again before
closing on your loan to make sure no major changes have occurred.
When home buyers are looking for a
mortgage, it is common to shop around between several lenders.
The credit bureaus understand this and take it in to account.
Under the FICO credit score model, all
inquiries made within 30 days are lumped into one to give you time to compare
different pre-approval offers. That means only one inquiry will affect your
Under the VantageScore model, all
inquiries within a 14-day period are grouped together and are
counted as one credit inquiry on your score.
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