According to a recent first tuesday poll, 67% of prospective homebuyers seeking to be pre-approved for a mortgage do not pull their credit report prior to pre-approval.
Not only is this action counterintuitive, it’s also a hefty reversal of results from a year earlier, in which 62% of respondents claimed their clients had pulled their credit reports prior to seeking pre-approval.
This year’s results are surprising in part because pre-approval is based on the prospective homebuyer’s credit report. Checking one’s credit report beforehand will ensure it contains accurate information — the homebuying process isn’t the time for unpleasant surprises.
Additionally, pulling a credit report isn’t a difficult process. Each of the three major credit reporting agencies (CRAs) — Experian, TransUnion and Equifax — are required to provide consumers an annual free credit report, meaning consumers may pull their credit report three times each year. That prospective homebuyers are so easily able to access their credit reports makes this oversight particularly jarring — after all, why wouldn’t you?
Best practices for credit reports and mortgage pre-approval
When a client of yours is seeking pre-approval for a mortgage — especially when dealing with a first-time homebuyer — advise them to pull their credit report first. Doing so will not affect the client’s credit score — nor will seeking pre-approval for a mortgage.
First-time homebuyers may be unsure about the mortgage application and pre-approval process, so have at least three trustworthy lenders you can refer them to for pre-approvals. It’s best to apply with multiple lenders to find the most competitive terms.
Even before starting the process, remind your novice homebuyers — and any client seeking a mortgage — to stay on top of the process, and that includes the client knowing what’s in their credit report.
A client’s regular monitoring of their report for accuracy is one of the most important steps in ensuring they are more likely to be approved for a mortgage. Inaccuracy is the most damaging factor to a credit score, and a lower score can in turn damage your client’s chance at approval and reduce their chances at a competitive rate and terms.
Advise your clients to stay on top of their credit and take advantage of free annual credit reports even when they’re not planning on buying or refinancing. It’s an important step everyone can take to maintain their financial health.
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