Charles Bristoll, a toronto-based Mortgage Broker, shares answers to your credit score questions – What is a credit score? How do credit checks work? Who has access to your credit score, and why having a good score is important.
What is a credit score?
Your ‘beacon score’ tells a lender whether you are likely to make payments on time and in full. Beacon (credit) scores are sometimes referred to as FICO scores, and both names are derived from the credit bureaus that developed the scoring system. Keeping track of this important number is vital. Inquiries to your score are recorded and tracked on the credit report as well. However not all inquiries are created equal.
How do credit checks work?
Each time a creditor (potential lender) checks your credit report, a record is created of this event. There are two types of inquiries, soft and hard.
A soft inquiry occurs when you pull your own credit report. (Worth doing on an annual basis and FREE via mail at either Equifax or TransUnion.)
A hard inquiry occurs when you submit loan or credit applications. A lender cannot process a hard inquiry without your written permission. There is a process to have non-authorized credit inquiries removed from your report.
Effects on Your Score
Soft inquires do not affect the credit score. You can pull your own credit score as many times as you wish without repercussions. Hard inquires affect the score to varying degrees. Multiple inquires that occur in a 14-day span are (typically) counted as just one inquiry. This helps those who are credit shopping (mortgages, personal loans, etc.) and need to have their credit pulled several times. Multiple inquiries are rarely the reason that people are denied credit, unless the score was borderline to start with.
This said, inquiries for ‘good debt’ such as a mortgage have far less impact on one’s credit score than multiple inquires for ‘bad debt’ such as a car loan/lease or debt consolidation.
Who has access?
Only individuals with a specific business purpose can check your score. Creditors, lenders, employers and landlords are some examples of approved business people. The inquiry only appears on the credit report that was checked. For example, if a landlord uses Experian to check the creditworthiness of an applicant, the credit check will only appear on Experian’s report, not TransUnion or Equifax. To limit the number of soft inquires made on your credit report, contact the credit reporting agencies and request that they remove your name from marketing distribution lists.
Having a few inquiries in a period of a couple of weeks while determining whether to work with a specific Mortgage Broker will (in most cases) not have a notable negative impact on your credit score. If your score is at or near 600 or 680 then you should be more cautious with inquires as this affects certain mortgage product availability.
Working with an independent Mortgage Broker typically results in one inquiry on your bureau for the use of multiple lender partners of that Broker. Thus more than one rate-hold can be placed with more than one lender without negative credit consequences via a Broker. Yet another great reason to work with a mortgage professional!