A mortgage broker gave a presentation to a group of Realtors® during which he discussed a couple things I think borrowers should know.
First, he said that there are still some lending officers or mortgage companies that will try to scare customers away from shopping for the best loan. Potential borrowers are led to believe that every subsequent lender they talk to will adversely affect their credit score. This is NOT true, and this unscrupulous practice could carry a stiff fine if reported.
The mortgage lender provided some specifics that are helpful to know. He explained that the first pull may cause a point or two to be subtracted from a credit score. Those 1 or 2 points will be factored in during the process of looking into and approving a potential borrower. Any subsequent mortgage credit inquiries within a 30-day period will not cause any additional points to be subtracted from the potential borrower's credit score. Clearly, it would be a good idea for a potential borrower to let any subsequent lenders know that they have already been shopping for the best mortgage deal.
The broker did make the point that inquiries for car or furniture loans or credit card applications will cause points to be subtracted from the credit score. A mortgage lender will factor those inquiries against the potential borrower, so hold off on adding other types of credit until after you've closed on your new home.
The bottom line: You are allowed to shop for the best mortgage credit deal. Although there has been some regulation of the fees lenders charge, there can still be a big difference. There is also a difference in the type of borrowers and loans a lender is willing to consider.
Second, the mortgage broker provided some insight into how the ratio between credit limit and credit balance can effect the credit score. It's no surprise that a credit card that is maxed out will lower a credit score, but apparently too low a ratio can potentially lower a score as well. As I understand it, there is more room to run the debt up from a low ratio which is why a mid-range ratio is preferred.
The mortgage broker also mentioned that credit companies only report to the agencies (Equifax, Experion, Transunion, etc.) when the monthly statement is issued. This means the balance is usually at its highest. If that high point is near the maximum credit limit, even someone that pays off their entire balance every month can receive a lower score. If you're like me, you like to build points by using only one account; however, I see now that there could be an unexpected effect on my credit score.
My takeaway from the presentation: Shop for a good loan officer. A professional understands the credit score process and can help you make good decisions.
As a full-service Realtor®, I maintain a network of professional contacts that have demonstrated their willingness and ability to get the job done. I can help you get started on your shopping for the best mortgage deal.