George's Blog

There still seems to be a lot of confusion as to what affects a persons Credit Score and what doesn’t.  Last month I wrote a blog on this Credit Scores, did not go into detail as to how much of a point swing each of those categories has on a credit score.  I am not going to do that here either, but I do what to clear up a couple of things. This past Saturday I wrote another blog .Com Lenders that some people who commented asked about the impact that the 16 credit hits had on this young couples score. My response was that I had not seen the Credit Report prior to these hits so I didn’t know if they had any impact.  In theory they should not of had any impact at all since they were all run buy Mortgage Companies, and within a three day period. Credit Bureaus are supposed to assign a subscriber code to each type of business which lets them know who is pulling the credit. The theory behind this is that if a person is having their credit pulled by several Mortgage Companies within a short period of days, they are to assume that they are shopping around and not buying multiple houses. Therefore these multiple hits are supposed to be "Bundled" into one hit.  That is what is supposed to happen, but there is no way of checking if that is what actually happens unless you know the credit score before these multiple hits accrued.

There is one situation in which I did get to experience first hand a major change in a credit score.  In December of last year I did a Pre-Approval for a woman who was selling her Condo, and looking to buy another in a different town.  When I ran her Credit in December she had two scores in the 700’s and one score in the 690’s.  Everything looked great, and she began to look.  In April she called me back and told me that she had found a Condo and wanted to apply for a loan.  Since it had been more than 90 days since I had run the first one, I needed to run her credit again.  When I did I got a big surprise, her scores had dropped 40 points.  The first thing I did was to look for “Charge Offs” and “Late Payments, there were none.  I then start to look at one Creditor at a time to see if anything had change.  It wasn’t long before one of them jumped off the page at me.  She had gone to a local furniture store and maxed out a $7,000 credit card.  There it was, the only change, and the only possible explanation.  I new that maxing out credit cards had a negative affect on your credit, but never had seen it first hand before.  Luckily for her the score only dropped to 663, I needed 660 on this loan, it worked and everything was fine again.  But what if her scores had all been in the 690’s and dropped 40 points?

Since then when I am Pre-Approving someone, I tell them this story and tell them to hold off on large purchases until after the closing.  Going out and making large purchases before they apply for the loan, can not only have this effect on their credit, but it also can send their “ratios” through the roof. Hopefully by warning my Borrowers of this it will keep them from making the same mistake as this woman.  It is better to stop the mistake before it happens, than to try to correct it afterwards.

Hopefully this helps in understanding at least one of the major affects on a “Credit Score”.