Q: I am thinking of buying a house in the next several months to a year. I want to get an idea of how much I can afford, but my friend told me not to have them run my credit until I am absolutely ready to buy because my credit score will go down. Is that true?
What Could Happen if I Wait?
A few weeks ago, a client came in ready to buy a home. They had been pre-qualified several months ago by their bank and were told they could afford a $750,000 home. They had been out looking and found a house they really liked and wanted to make an offer. They came in with all their information and I ran a credit report. Low and behold, there were two collections on their credit report that were not theirs. In their case, their credit score had dropped below the acceptable level and they no longer qualified for the loan. They had to call all of the credit agencies and get the collections removed. Then once the collections were removed, I arranged to have a rapid re-score, which did bring their credit score back up to an acceptable level. However, during the time it took for us to correct their report, which can take several days, the house was sold to someone else. Had they come in when they started looking for a home and received a genuine pre-approval, they could’ve avoided this problem and purchased the house with no problem.
Are these Horror Stories Frequent?
No. Most of the time we see credit reports with correct information. However, for the people who have had incorrect information on their credit report, or for others who could fix a few minor things to improve their credit score, it is worth it to check it out in advance.
Will the Free Credit Reports Suffice?
The free credit reports are good for consumers to check once a year to monitor their credit. However, they aren’t going to go into as much depth as a credit report we run. So, if there is something buried deep in the report, you may not catch it. The free credit report is a good start, but when you get serious about buying a home, you should go in and speak with a Mortgage Advisor.
Will My Credit Score Drop Dramatically?
Running your credit can affect your credit score anywhere from 2-50 points. There is no formula and it really depends on your specific situation. You do get a two week window when you are shopping for a mortgage loan. Let’s say you go to three places within 14 days of your first credit inquiry and each run your credit. This counts as one inquiry to your credit score.
Bottom Line?
You should run your credit and get a genuine pre-approval when you start seriously looking to buy a home. This should be before you find the house you want to make an offer on, but doesn’t need to be when you first start looking at homes online. You have to be comfortable about running your credit and should be careful about who runs it and when it is run. We’re more than willing to arrange a consultation with you where we can give you the information and help you decide when it is best for you to run your credit based on where you are in the home buying process.
Curious About How Much You Can Afford?
Come in and see us, send us an email or fill out our secure mortgage application and we’ll help give you an idea of the type of program that would best suit your needs. We’ll also give you an idea about how much you can afford and what the monthly payment would be and you can decide the price range you are comfortable looking.
Other Posts You May Enjoy
- Mortgage Myth Busted: I Must Have Steller Credit to Buy a Home
- Why It is Imperative to Get a Pre-Approval Before Submitting an Offer
- How Mortgage Interest Rates Affect Your Monthly Payment
- What Mortgage Can I Afford?
- The CIA of Lending: C is for Credit
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Chris Williamson is a Mortgage Advisor with Mortgage California specializing in San Mateo Mortgage.
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