Credit Scores and Mortgage Shopping

Credit-Scores-Mortgage When you apply for a mortgage your lender or mortgage planner will almost always check your credit.  Most Canadian lenders use Equifax for this purpose.

Here are a few things you may or may not know about the process:

  • When a bank or mortgage professional initially checks your credit score, your score goes down.
  • According to a source at Equifax, your score can drop anywhere from roughly 5 to 20 points on the first mortgage inquiry.
  • After the first inquiry, a 30-day clock starts ticking.  During this time you can have multiple mortgage inquiries without negatively impacting your score.  But there’s a catch.
  • The person making the inquiry MUST use Equifax’s “mortgage code” when requesting your credit score.  (If you’re a mortgage professional you can tell if you’re using the right code by checking if “FM” is in your Equifax member number. )
  • Mortgage planners from all the big broker firms use the mortgage code.
  • Big banks may or may not use the mortgage code, according to the Equifax rep we spoke with.
  • Credit unions often have their own unique code.

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Factoid:  When a lender or mortgage planner pulls your credit, he/she sees your credit score before the impact of that inquiry.  The next person to check your credit will see a different (lower) score because the first mortgage inquiry will have reduced it.

  1. If your credit score is negatively affected by an inquiry, how long does this negative effect last? At some point the 5 to 20 points lost should be recovered, shouldn’t they?

  2. Hi Bill,
    Yes, as long as nothing else negatively impacts your score you will recover the points eaten up by the inquiry.
    Equifax won’t say how long this takes, however, because their scoring algorithm is a “black box” with infinite variables.
    Inquiries officially fall off one’s credit report permanently after three years. However, in our experience your score bounces back from individual inquiries much much sooner–assuming you don’t miss any payments, run-up your credit cards, etc.
    Cheers,
    Rob

  3. It would be good to also mention how the beacon is calculated.
    Scores range from 300-900. Lowest I have ever seen is a 357 highest was 856.
    Here is the breakdown of calculations:
    35% of total score is payment history
    30% of total score is balance to available credit
    15% of total score is length of credit history
    10% of total is new credit (credit inquires and recently opened accounts)
    10% of total is types of credit used (FI’s like Transcanada / WellsFargo loans reduce your score).

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