Are Credit Apps Misleading You?
One of the bigger contributors to financial transparency has been the advent of easily accessible credit score tracking sites. Sites such as Credit Karma and Free Credit Report make it easy to keep an eye on your credit score, especially if you are trying to improve your scores in preparation for buying a home. Some credit card companies are even offering to include your score in their monthly statements.
With this information so easily accessible, consumers are more keenly aware of changes in their score, and sensitive to score movements. They are aware of the negative impact that a lower score can have, and want to do what they can to prevent that. But these apps and sites can also alarm home buyers unnecessarily by sending “false alarms” when the user’s credit score supposedly drops. On two different occasions recently, I have received calls from clients in a complete panic because they received a notification from their Credit Karma app that their credit score dropped dramatically, for no apparent reason, or because of one credit inquiry by their lender.
I reached out to Todd Kurio of Capstar Lending here in Austin, TX, to find out what should and shouldn’t worry home buyers about their credit score during the qualification process. Todd let me know that there’s not necessarily any need to panic when you see these small “dings”.
A couple of the key points he made:
Credit inquiries may affect your score 0-5 points per inquiry, depending on how much credit experience and seasoning you have—the more seasoning, the less it affects it.
FICO folks understand “rate shopping”; those types of credit inquiries are “bundled together” and are treated as only ONE inquiry within a 45-day window (assuming you’re shopping for the same type of credit with each inquiry). This doesn’t apply to credit cards, only to mortgage loan or auto loan types of credit inquiries.
In summary, the scores reported by Credit Karma and similar apps frequently vary from those reported by FICO because they are considering different criteria. Your FICO score is the most important score for your home-buying qualification, and your lender is the BEST source for helping you pull and improve that score, if needed. In Todd Kurio’s case, he also has a solid “credit coach” to whom he can refer you if needed.