Ask Our Broker With Peter G. Miller
By Peter G. Miller
CTW Features
Question: We have been told to avoid checking our credit reports because the mere act of ordering them will result in lower scores. Is this true?
Answer: Consumers should have access to their own information and they should use that access to ensure what’s being reported is correct. According to the Federal Trade Commission (FTC), one in four consumers identified errors on their credit reports that might affect their credit scores. Some of these errors were substantial.
“Approximately one in 20 consumers had a maximum score change of more than 25 points and only one in 250 consumers had a maximum score change of more than 100 points,” the FTC said.
These numbers can impact your credit standing and increase the interest rate you pay for a mortgage. So sure, you absolutely should check your credit report before you speak with mortgage lenders, perhaps two months in advance so there’s time to correct any mistakes and delete outdated information.
You can do so without cost or obligation by going to AnnualCreditReport.com. Under the rules, you can get one free credit report from each of the three major credit reporting agencies once every 12 months, a total of three reports before the clock starts again.
If you ask for a report, it’s a “soft” inquiry and does not impact your credit score. For instance, CreditKarma.com says you can check your credit score with them as often as you like without affecting your credit score.
If you authorize a credit check because you want a loan or a line of credit, it’s a “hard” inquiry and can potentially result in a lower credit score.
However, don’t let worries about hard inquiries stop you from shopping around for the best-possible mortgage deals. As myFICO.com explains, “hard inquiries are inquiries where a potential lender is reviewing your credit because you’ve applied for credit with them. These include credit checks when you’ve applied for an auto loan, mortgage, or credit card. Each of these checks count as a single inquiry. One exception occurs when you are ‘rate shopping’. That’s a smart thing to do, and your FICO score considers all inquiries within a 45 period for a mortgage, an auto loan or a student loan as a single inquiry.”
A caution:
There are a lot of places online that offer “free” credit information and services. The FTC says consumers should be careful because in some cases the “free” product comes with strings attached. For example, some sites sign you up for a supposedly “free” service that converts to one you have to pay for after a trial period. If you don’t cancel during the trial period, you may be unwittingly agreeing to let the company start charging fees to your credit card.
© CTW Features
Peter G. Miller is author of “The Common-Sense Mortgage,” (Kindle 2016). Have a question? Please write to [email protected].