Why's my FICO score dropping? Here’s an answer

The New York Times’ Lynnley Browning writes,

“IF you’re looking to refinance or buy a home, potential lenders and mortgage brokers will be checking your credit scores. And if those scores are being verified, chances are they are going down.

“Yes, you read that correctly. Each time a credit score is pulled from one of the three credit bureaus as part of a loan application, it can decline by as much as 20 points, or more. Call it the Great Credit-Score Ding.”

While information about credit scores and their use is becoming more widespread, “few buyers know this goes on — or what to do about it.”

“Most consumers are unaware that this happens,” said Paul Stephens, the director of policy and advocacy for Privacy Rights Clearinghouse, a consumer advocacy group in San Diego.

The so-called FICO score is sold to the three credit bureaus — Equifax, Experian and TransUnion — “which each then use different formulas to compute a consumer’s creditworthiness.”

The higher your credit score, the lower your interest rate. So why does your score get affected by credit report inquiries?

“It is the “hard pull” inquiry — in which lenders and brokers learn that you are in need of money, and check your credit in order to process your application — that can most damage your score.”

This can result in a 20 point or more drop in your score each time you authorize a lender to check your credit.

“So how can borrowers minimize the blow, especially those shopping for the best mortgage rates and working with more than one lender or broker?”

“If all the requests are made within a short time, they usually will count as only one check.”

There is some good news, “borrowers who check their own credit scores through a less invasive “soft pull,” to get an estimate of creditworthiness and of loan rates, do not see their scores go down.” So, ask your lender to do “a soft pull before deciding which loan to go with, at which point a formal inquiry is made.”

Read the full column, Preventing Credit Score Dings

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