Credit Pulls and Credit Alerts
Timing a credit pull can sometimes be the hardest thing we have to ‘guestimate’ when to do. Allow me to explain. For a proper prequalification, a credit pull is essential. Before we do this, we always ask the borrower what they think their credit is or what they think their credit is like. Believe it or not over 85% of people are wrong when we ask then to narrow it done other than Excellent, Good or Bad. On average most people are at least 40 points or more off from their current scores. Very few are spot on while some are over 100 points off.
Let’s start with those with excellent credit. The most common thing I hear from these disciplined people is, “I have no debt.” I follow up with my next question, “Do you have credit cards?” and I always hear “Yes, but we always pay off the balance at the end of the month so we have no debt”.
This a big miss conception. Every time you use that card, even if you pay it off at the end of the month, think about what you are saying. If you have to pay it off it means you created a debt. What we have to do is determine when you need this prequalification completed, in order to start your home search, and when you will have zero balances on your cards. What I mean is if I pull your credit on the 22nd of this month because you starting you home search on the 23rd or 24th you may have a months’ worth or large balances on your cards. This could result in a lower credit, which most often results in a higher interest rate you may be offered.
On the other end of the spectrum we have people with lower credit scores and are borderline of not qualifying for a loan. Sometimes we need to pull credit, look at it and determine if they need help to increase their credit scores in order to move forward. Even if the borrower has a strong credit score they may request we do the same thing for them in order reach the next break point in order to receive a better interest rate.
Credit Pulls and Credit Alerts
Some people have set up credit alerts with a credit bureau and every time some inquires about their credit the borrower is alerted. Just as consumers can set up these alerts, so can lenders and collection companies. This is extremely important to understand because if we pull your credit and we need to repair or improve your situation, those collection companies that have alerts setup will immediately update their collection account. This could drop your credit score 20 to 40 points Anything we discuss about doing with your credit we most always have to do a ‘rescore’ once completed. How fast we complete this is very important as we want to beat the collection companies to the punch, to ensure we can get a higher credit score before they can get their update in to the bureaus.
Its extremely important that you know your credit status and at least have a basic understanding of how credit works. Get prepared in advance, ask questions, get your facts and we will see you at a happy closing table.