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My wife and I (usually) have excellent credit. TransUninion had me at 790 and other agencies well into the 800s. Our lenders have already prequalified us for our home, and sent the ratings they got for us in the mail (790).

Yesterday I noticed our score with TransUnion dropped to the 650s. From what I can tell nothing is wrong on the reports. The only things I can think of that would have caused this are:

  • I had to put $4,000 on a credit line for computer equipment I need for work (December)
  • My wife's parents had me co-sign on a new car they bought her for Christmas (December: $20,000)
  • We've had 3 lenders running our credit to PQ us for a mortgage

We're going house hunting next week, and I'm kind of freaking out. We were basically a lock for the lowest available APR. Will this come up during the underwriting and knock us out of the rate we were looking to get? Is the score I got PQ for locked in? What should I be prepared for? Is there anything I can or should do now?

Edit: So the plot thickens slightly. I just bought a credit report for myself to look at from my FICO, and TransUnion still reports my score as 774. The places I've seen 650s is from credit monitoring services (from my financial institutions like Chase, AMEX, etc.). Now I'm curious why they're saying my credit took a huge hit, but my actual report is only showing a drop by about 20 points.

Edit 2: I found the discrepancy. My VantageScore 3.0 dropped significantly, but not my FICO score. I bought a credit report for myself, and it reports 774 still. Assuming most major lenders only use FICO scores, I assume all is still well and I've panicked over nothing.

Counter
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MrDuk
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    Did the December purchases happen after the pre-qualification? Also, are you sure it's pre-qualification and not pre-approval? The former doesn't require a credit check (but maybe they're just being pro-active on that front). – Hart CO Jan 10 '19 at 18:53
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    Are her parents making the car payments? Why did you need to co-sign? – D Stanley Jan 10 '19 at 18:58
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    @DStanley -- they wanted to (a) help me build some credit, and (b) wanted at least one of our names on the title. They're making the payments. – MrDuk Jan 10 '19 at 19:01
  • @HartCO -- they all happened before the PQ, and yes I'm sure it's a PQ (we haven't actually put an offer on any houses yet) – MrDuk Jan 10 '19 at 19:05
  • @MrDuk This happened to me buying a car. The credit reports that some lenders pull don't weight things the same way as the FICO etc. that banks use. Bank said I was a lot lower than what they pulled. You can't assume it'll happen, though, which is the big issue. – CKM Jan 10 '19 at 19:11
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    If your credit score was 790+, why did they need to help you build credit? Never, never co-sign a loan. – Kevin Jan 10 '19 at 19:50
  • @Kevin -- yeah, hindsight I should have just said no. Agree – MrDuk Jan 10 '19 at 19:52
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    To be extra clear, my wife's mom is from Korea and had a huge shock to see how important credit scores are here (U.S.) -- since then, she's been super vigilant about increasing everyone's credit score as high as possible. But yeah, again, I should have just said no thanks and left the car in their names. – MrDuk Jan 10 '19 at 20:03
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    Re: your second edit - there are multiple different FICO scores. But fingers crossed, hopefully you're right and they use the same one you did. – CactusCake Jan 10 '19 at 20:13
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    @MrDuk i urge you to seek out information on Dave Ramsey's book on Boundaries. Those big lines of credit just before closing on your house is the reason you could be outright denied the loan due to drastic differences in Debt-To-Income ratios. That co-signed car factors 100% on YOUR d2i ratio because you signed that you will accept liability for paying for the other party's car when they cant... Not a wise financial move to have asked you to do that, nor wise on your part to have done so, especially just before the house purchase. – enorl76 Jan 11 '19 at 01:46
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    Title: "going house hunting next week" - you're still like 2 months away from 'buying a house next week'; a week away from closing, nothing should matter. – Mazura Jan 11 '19 at 06:33
  • @d-b Your credit rating is a scale on how likely a credit company is to make money from you (they might try to call it something else, but this is what it really is). This is why the fastest way to increase your credit rating is to have a credit card, and then pay only the minimum amount. Granted, you'll be paying interest, but that's what credit companies WANT you to do, and as such, you'll be more likely to be offered more credit. The total amount of money that the companies stand to win/lose doesn't really come into it. – UKMonkey Jan 11 '19 at 14:42
  • No it is not a joke. Good credit is a mix between liquidity and solidity. You might be extremely solid but still unable to pay your bills because your wealth is invested in something that is really difficult to convert to liquidity. And the other way around, you might be extremly liquid with a suitcase full of cash at home but still be a very risky investment for a creditor because your debt is bigger than the amount of cash you have. I was told since I was a child that one should always have savings that equal what you make in salary in 2 months (as a first step, next step is 1 year's income) – d-b Jan 11 '19 at 16:00
  • Besides, if you are 22 and your wife is approximately the same age I guess your in-law are in their late 40s or so. If someone that old can't pay 20k in cash for a car, they are a perfectly good example of someone you never should co-sign something with. – d-b Jan 11 '19 at 16:04
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    @d-b Unless you're rather wealthy, paying $20k in cash for a car is simply a bad idea almost no matter how you slice it. I'd rather have that $20k sitting around for a real emergency, while I slowly pay off a 0% interest loan for the car. There's nothing wrong with that... it's actually smart. Heck, I'd much rather put that $20k into my mortgage instead and save a ton in the long run. There's absolutely nothing wrong with using credit and loans, especially for a car. – user91988 Jan 11 '19 at 16:24
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    @only_pro Most 0% interest car loans result in forfeiting discounts you could have received on the car if you'd paid cash. You will usually still come out ahead by paying cash for a car. An exception would be if you're using a 0% intro APR on a card or something like that. At any rate, taking out almost any loan soon before purchasing a house is quite a bad idea. – reirab Jan 11 '19 at 21:00
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    @reirab that's not always true - some auto manufacturers that are trying to boost their own banking division sales will offer discounts that you can only get if you finance the car (dealer doesn't care about this - it's a deal between you and the manufacturer/bank directly, so they can still offer their own incentives on top without negatively affecting their bottom line). – CactusCake Jan 11 '19 at 21:34
  • @CactusCake That's why I said 'most,' not 'all.' I was just pointing out that only_pro's comment about paying cash for a car almost always being a bad idea really isn't true. – reirab Jan 11 '19 at 21:55
  • @reirab ah, fair point. – CactusCake Jan 11 '19 at 22:45
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    @only_pro If you get a 0 % loan, with no fees, good for you - keep the 20 k in the bank but start saving the amount the car loses value (maybe 10 %/year) instead. Yes it is. Credit should be used for investments (e.g. housing), not consumption (especially not a car that cost a lot of money not just when you buy but also when you own and use it). Besides, having 20 k available is not being rather wealthy. – d-b Jan 12 '19 at 07:55
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    @thecomment6up - No free lunch. But this entire comment thread should probably be moved to chat. To request some clarification from the asker though... what were you thinking engaging in credit events right before you're going to start shopping for a house? I hope you get preapproved and a good rate locked in, though. Cheers! – Aaron Hall Jan 13 '19 at 04:48

5 Answers5

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Each of the recent changes you listed has the following effect on your credit score:

  1. $4K on credit line: increases your debt utilization. The smaller the denominator (sum of all credit limits of CC's and lines of credit) the more this will lower your score. The good news is, within 30 days of paying that off your score will jump back up.
  2. Co-signing a $20K loan: probably added one hard inquiry to your report (approx 5-10 point hit for 2-4 months). The loan itself may not have much impact on your score otherwise. It will slightly lower your overall average age of accounts which could cause a slight dip, but it could also increase your credit mix, providing a slight bump to your score. Obviously the impact of each depends on the rest of your credit profile, but typically these two come close to balancing each other out. Over time with perfect payment history you'll likely see small increases due to this loan.
  3. Inquiries from multiple mortgage lenders: as long as they are all for mortgages, they will collapse into a single hard inquiry. At worst you should have 1 new mortgage inquiry and 1 new car loan inquiry. (Approx 5-15 points for 2-12 months.)

Other than score, the $20K loan could affect your DTI ratio for how much house you can afford, if you were butting up against the edge that you were able to borrow. Worst case though is it would reduce the amount of the loan they would give you by approx $20K. (More if the car loan interest rate is high.)

Recommendation: if your mortgage rate drops due to the score decrease, then pay off the $4K and wait 1-2 months and try again.

TTT
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    This is important because most people don't realize when they "co-sign" for a loan, other lenders treat it like it was your loan. The full amount of the loan and monthly payment is used in their calculations as if you were the sole signer on the loan. – JPhi1618 Jan 10 '19 at 21:13
  • In my experience in the industry, each Lenders inquiry will appear on the credit report and affect the score. A small number should affect the score significantly, but if you had applied to a dozen different lenders, it will tell another prospective lender that you had been declined and they will look closer to determine why. The total number of inquiries recorded over a period will also affect score, but also the type of credit, whether the credit is secured, and your repayment history have a greater effect. – Hearth Jan 11 '19 at 00:27
  • @Hearth - I agree all the inquires will show up on the report, but I believe those in specific categories do collapse if they occur within a certain time frame (45 days perhaps?). Note that each bureau and their respective models may treat them differently. Here's some more thorough research I did a while back: https://money.stackexchange.com/a/77630/17718 – TTT Jan 11 '19 at 01:52
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    What most people don’t realise is that when they co-sign a loan it is their debt. If the other person doesn’t pay, you pay. – gnasher729 Jan 11 '19 at 08:56
  • "The loan itself should not affect your score otherwise." -- why wouldn't that effect their debt utilization? – Yakk Jan 11 '19 at 17:29
  • @Yakk - utilization, as it pertains to your credit score, is for revolving lines of credit (credit cards and credit lines). Car loans, mortgages, student loans, and personal loans are not revolving (they are term loans) and thus are not included in the calculation. Term loans, in conjunction with your income, do affect how large of a loan you can afford though, which is sometimes called debt-to-income ratio. But they don't affect your score (unless you have so much you can't afford on-time payments- then your score will start to tank.) – TTT Jan 11 '19 at 17:33
  • "The loan itself should not affect your score otherwise." Are you sure about that? Credit mix constitutes 10% of a FICO score. New credit is an additional 10%. – reirab Jan 11 '19 at 21:03
  • @reirab - Good point. Depending on what other term loans OP has, this could increase the credit mix and provide a slight bump. Similarly the AAoA will decrease, possibly causing a slight dip. I've updated the answer to consider both of these. Thank you. – TTT Jan 11 '19 at 21:20
  • is misleading. Installment utilization is calculated separately from revolving utilization; there is a FICO score code specifically for that. It is part of debt load which is 30% of FICO. For OP this utilization would be ~100% since the loan was just taken out.
    • – xiaomy Jan 13 '19 at 23:23
  • @xiaomy - do you have any evidence supporting that claim? I have personal evidence and myfico simulation data which both say that is not true. – TTT Jan 13 '19 at 23:46
  • It's model dependent (from what I've seen 08 and 98 uses this one for sure). The reason code is "Proportion Of Loan Balances To Loan Amounts Is Too High". Google "installment utilization" and you'll see quite some myfico discussion and even strategies to counter/manage that. I know this because my score took a dive exactly like OP after my first auto loan. – xiaomy Jan 13 '19 at 23:55
  • @xiaomy - I'm not sure if you noticed OP's updates, but it turns out OP's score only dropped about 15 points which is consistent with 2 hard pulls and a possible increase in revolving credit utilization. Regarding your claim that installment loan utilization matters, I've never seen evidence of it, and all the research I've done suggests that if it is factored in, it's likely less than 10% of the 30% section, meaning just 3% overall. I think the main reason for this is FICO doesn't know about your income. Furthermore, if this was a thing, refi's, which are a good thing, would hurt your score. – TTT Jan 14 '19 at 05:15
  • I'm sure you know that even for FICO there are dozens of variations out there. Some uses this factor more than others. I'm simply pointing out the fact that there exists this factor, and I have seen its impact at least for my TU 08 score. The existence of its own reason code should speak for itself. To what extent does it matter in e.g. mortgage app requires more research and experience than what I currently know. Just don't think it should be dismissed so easily. – xiaomy Jan 14 '19 at 15:52
  • @xiaomy - yes, i've seen that text too from some models, and again I'm not convinced it actually means anything or makes a noticeable difference. (I'd probably stop just short of saying that text might be there just to throw people off from figuring out the true algorithm!) That being said, I agree with you that its existence may merit at least a mention... I'll consider editing the answer. – TTT Jan 14 '19 at 16:52