Virginia Beach Homebuyers – Know the FICO Rules
Virginia Beach homebuyers need to know the rules of credit reporting in this marketplace where lenders are demanding record-high FICO scores.
Given the importance of maintaining high scores, we thought it would be helpful to go over the key rule concerning inquiries that affect Virginia Beach homebuyers, since Fannie Mae and Freddie Mac are now averaging around 760 scores on approved mortgages this year.
FICO Inquiry Rules Affecting Virginia Beach Homebuyers
Racking up large numbers of inquiries can lower your score. The FICO models consider such numbers significant because extensive behavioral research has shown that "consumers who are seeking new credit accounts are riskier," more prone to defaults. Statistically, people with six or more inquiries on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports, so inquiries do matter.
This doesn't mean if you're shopping for a mortgage or looking to refinance that your score will drop if you have 6 lenders pull your credit reports. The FICO models ignore all mortgage-related inquiries during the 30 days immediately preceding the computation of the score. All mortgage inquiries during the 45 days preceding your loan application count as no more than a single inquiry. The same goes for shopping for auto loans and student loans, but no other forms of credit fall under this buffer zone.
Fannie Mae and Freddie Mac have begun requiring lenders to pull a second set of credit reports immediately before closing to ensure that applicants' FICO scores haven't changed significantly. Depending on when the first reports were pulled, you could be hit with two inquiries for the same loan. That could cost you 5 to 10 points on your score.
Virginia Beach homebuyers need to keep in mind, if you're shopping for a mortgage, avoid all other credit-related shopping until your mortgage is approved and closed. Avoid shopping for furniture, home improvements, credit cards, you name it, in the weeks before your home closing. A string of inquiries can mount up and knock your home purchase right out of the water.
If you're checking your own credit, either through AnnualCreditReport.com (where they are free once a year) or by buying them from Equifax, Experian or TransUnion, your FICO score goes untouched.