What Is A “Credit Pull”?
A “credit pull” is a formal request to review a person’s credit report. Formally called a Credit Inquiry, this inquiry is part of the credit scoring algorithm which along with four other credit-related behaviors generates your credit score. The New Credit category from your credit inquiry the smallest of five credit score components, comprising just 10% of a person’s overall credit score.
Consider the four types of credit inquiries (or pulls): for a purchase or refinance mortgage loan, for an auto loan, for a credit card application, for a store credit card, or consumer loan.
Credit Inquiries effect your credit score because when a person makes a credit inquiry, that person indicates to the credit scoring system that the person is looking to increase their overall level of indebtedness. With more debts, a person is more likely to miss payments to one or more creditors. It makes sense, then, that your credit scores drop when you go applying for new credit cards or charge cards. With each application, you show a propensity to borrow more money “on account”, and you become a financial risk. The credit bureaus don’t care about the “10% off your total purchase price by opening a card” or that a “Rewards Card pays you 2% back annually.” All the credit bureaus see is your request to borrow more funds. This request can be a signal of financial trouble, and why credit pulls can harm your overall score.
However, mortgage credit pulls, are weighted differently. Comparatively, a credit card application is weighted “worse” than a mortgage loan application because credit card debt can increase quickly over time, until they become unmanageable. Mortgage debt usually decrease over time with each payment until it reaches $0. Credit pulls related to consumer loans and store credit cards are also weighted worse than mortgage credit pulls. These loan types are associated with layaway plans and “loans of last resort”, which tend to default at very high rates. The probability of default is enough to affect your FICO credit score.
A Mortgage Loan Credit Pull alone will lower your average FICO score by no more than -5 Points. Credit pulls for loans will affect your credit score in time, but the effects of a credit pull will vary by creditor type. As compared to other credit applications, pulling your mortgage credit will do almost nothing to your credit score. In general, auto loans and mortgage debt are generally viewed as “positive” credit types because auto and mortgage debt often begins at an indebtedness level, and pays down toward zero at regular intervals, thereby removing the debt altogether. Store charge cards work in the opposite manner and are considered to be “negative” credit types.