Navigating the Impact of a Mortgage Application on Your Credit
July 10, 2023
Written By: Trisha Madrid
July 10, 2023
Applying for a mortgage can feel like embarking on an exciting adventure, a journey toward your very own home. But like any epic trek, there are questions to be answered and challenges to overcome. A common puzzle? Understanding the impact of a mortgage application on your credit. Fear not, fellow adventurer, for Bison Ventures is here to guide you with a map to three key territories: credit score, credit history, and credit utilization.
Your Credit Score: A Temporary Detour
The first destination on our journey is your credit score. When you apply for a mortgage, we’re required to perform what’s called a ‘hard credit pull,’ where we collect data from all three credit bureaus. This process can cause a minor detour in your credit score, taking it down by about three to five points.
Don’t let this divert you from your path, though! This slight dip is temporary, a mere 90-day layover. As common as rest stops on a road trip, it’s an industry-standard procedure necessary for a comprehensive pre-qualification. After this brief pause, your credit score climbs back to its original position.
Credit History: Charting Your Course
Next, we venture into the realm of credit history. If you’re a first-time homebuyer and your journey thus far has been cash-based, your credit history might seem like an unexplored path when we pull your credit report.
Don’t let this uncharted territory intimidate you. At Bison Ventures, we’ve guided countless explorers, no matter their credit background. We’re equipped to lead you down a non-traditional credit profile route, if necessary. If you’re prepping for the expedition of homeownership and looking to build your credit, we recommend establishing a couple of trade lines that you’re paying on regularly.
Credit Utilization: Balancing the Load
The final stop on our map is credit utilization, which is essentially the portion of your credit limit that you’re using. Picture having a $5,000 limit on a Visa card. Keeping your utilization under about 30% is like lightening your backpack for a more comfortable trek, boosting your score. If your utilization falls between 30 and 50%, your score will hold steady, as long as you’re keeping up with payments.
As you prepare for the big journey of applying for a mortgage, it’s crucial to take stock of your current credit card balances and any auto loans. If you’ve recently taken on an auto loan that’s less than six months old, consider waiting a bit, giving yourself time to lower your utilization rates and ensure on-time payments on your new credit for at least six months.
We understand that the journey to homeownership can feel like a long trek, especially when credit concerns join the trip. But remember, we at Bison Ventures are your trusted trail guides, ready to assist you at every turn. Feel free to reach out with any questions about mortgages and credit. Thanks, and here’s to a successful journey to your dream home!