What exactly happens when a mortgage lender checks my credit?

The credit check is reported to the credit reporting agencies as an "inquiry."

Inquiries tell other creditors that you are thinking of taking on new debt. An inquiry typically has a small, but negative, impact on your credit score (usually up to about 5 points according to Experian). Inquiries are a necessary part of applying for a mortgage, so you can't avoid them altogether. But it pays to be smart about them. As a general rule, apply for credit only when you need it. Applying for a credit card, car loan, or other type of loan also results in an inquiry that can lower your score, so try to avoid applying for these other types of credit right before getting a mortgage or during the mortgage process. 

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How does my credit score affect my ability to get a mortgage loan?

Your credit score, as well as the information on your credit report, are key ingredients in determining whether you’ll be able to get a mortgage, and the rate you’ll pay.

Your credit report and your credit score are two different things. Your credit score is calculated based on the information in your credit report. Higher scores reflect a better credit history and make you eligible for lower interest rates.

You have many different credit scores, and there are many ways to get a credit score. However, most mortgage lenders use FICO scores. Your score can differ depending on which credit reporting agency is used. Most mortgage lenders look at scores from all three major credit reporting agencies – Equifax, Experian, and TransUnion – and use the middle (not the average) score for deciding what rate to offer you.

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Errors on your credit report can reduce your score artificially – which could mean a higher interest rate and less money in your pocket – so it is important to check your credit report and correct any errors well before you apply for a loan. Also, having a dispute on your credit report pulls that specific piece of credit out of the scoring model so that the stated score is now incorrect and not reflecting your true credit for underwriting purposes. This is why in recent years most lenders and Fannie Mae/Freddie Mac/FHA require all disputes to be either resolved or removed prior to settlement and re-underwritten.

Your credit score is only one component of your mortgage lender’s decision, but it’s an important one. It will in most cases affect the interest rate that you are paying as well as your PMI (private mortgage insurance) if required.

Article Written By: Kevin Berju

Looking for a Lender in Philadelphia? Contact the Philly Mortgage Team. Click below.

Kevin Berju starts Philly Mortgage Team with over 25 years in the mortgage industry. Prior to working with residential and commercial mortgages, Kevin graduated with a business degree from Temple University, owned his own business, and worked as an agent for years in both commercial & residential Real Estate. With Kevin’s diverse knowledge of the real estate and mortgage industries, his clients are thoroughly guided throughout their home buying or refinance process. As a result of his knowledge, attention to detail, responsiveness to his clients, and exceptional work ethic, Kevin was awarded the Five Star Mortgage Professional recognition in Philadelphia Magazine for the past successive years as well as reaching the top 1% of all originators country wide since 2012 as designated by Mortgage Executive magazine.

As a mortgage professional for over 2 decades, Kevin is an invaluable resource for both first-time and experienced home buyers. With his accomplishment of the Certified Mortgage Planning Specialist designation, Kevin is placed in an elite group of the top 5% of mortgage professionals in the industry. Looking to Purchase or Refinance in Pennsylvania, New Jersey, or Florida? Kevin Berju is the Lender for You!

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