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It means anybody buying lists of people meeting X criteria from the CRAs don't get your name. Many junk debt buyers will buy the list of people with recent mortgage apps, knowing that those people will be desperate to clear the negative. And since you are applying for a mortgage, you probably won't be (shouldn't be) applying for anything else, so preapprovals don't really do you any good anyway. It takes 30 seconds to do the opt out, 5 days for it to kick in. Once you buy the house you can easily opt back in.
A legit debt collector can pull your report, but some of the junk guys may have a tenuous claim on your debt. Buying the lists is probably a cheaper way of getting peeks at lots of people.
Basically it just adds a small layer of protection, at a time when prequals probably aren't doing you any good anyway, so may as well do it.
I have read that it is a good practice and I will be doing it for my next mortgage / refi.
It's been awhile since I was in the mortage app scenario but I did have 2 old small jdb situations pop up, and yes, I did settle them in full as quickly as possible. Both were old and well past the SOL and not on my CRs, but became critical once the lender pulled the CR and then went back in later and saw it. Both became 'conditions of approval' so I paid it quickly. And I did not recognize the debts or the CAs and did not see them on my CRs in the months before the mortgage app, but since they were both under 100, they got paid without further question, and the mortgage was approved.
I will be doing the 'opt out' a couple weeks before my next app, kind of like why I get a flu shot every year, just for prevention.
hth
helps. dont hurt. and it is free