Make sure to do a little planning before you start looking for a mortgage. With a some work, you can keep your score in top shape relatively easily as you shop for the right mortgage lender.
“Metaphorically, not letting your lender check your credit is like not letting a doctor check your blood pressure. Sure, you can get a diagnosis when your appointment’s over — it just might not be the right one.” – Gina Pogol, The Mortgage Reports
When you start looking for the right mortgage provider, shop carefully because your credit score might suffer if you don’t take care. Each time you apply for a home loan, a mortgage lender will make a credit inquiry to review your credit history. These inquiries are reported to the three major credit-reporting agencies: Equifax, Experian and TransUnion.
If there’s one thing to take away, from Pogol’s article…”do make sure to share your social security number with your lender so they can give you accurate mortgage rate quotes instead of just best guesses or ‘ballpark rates’.”
Mortgage vs Credit Card Inquiries
A hard inquiry generally means you’re searching for additional credit. “Statistically, you’re more likely to have debt problems and default on financial obligations when you increase your available credit. This is especially true if you’re maxed out or carrying credit card balances and looking for more”, says Pogol.
She continues, “Understanding this, it makes sense that your credit scores drop when you go applying for new credit cards or charge cards. Fortunately, credit bureaus have learned that mortgage shopping behavior does not carry the same risks and they no longer treat a slew of mortgage inquiries the same way.”
They key point here is that multiple mortgage companies can check your credit report within a limited period of time – and all of those inquiries will be treated as a single inquiry. That time period depends on the FICO system the lender uses. It can range from 14 to 45 days.
What FICO Says
This is what MyFICO says about its algorithms and how it treats rate shopping inquiries:
FICO® Scores are more predictive when they treat loans that commonly involve rate-shopping, such as mortgage, auto, and student loans, in a different way. For these types of loans, FICO Scores ignore inquiries made in the 30 days prior to scoring.
So, if you find a loan within 30 days, the inquiries won’t affect your scores while you’re rate shopping. In addition, FICO Scores look on your credit report for rate-shopping inquiries older than 30 days. If your FICO Scores find some, your scores will consider inquiries that fall in a typical shopping period as just one inquiry.
For FICO Scores calculated from older versions of the scoring formula, this shopping period is any 14-day span. For FICO Scores calculated from the newest versions of the scoring formula, this shopping period is any 45-day span.
Mortgage rate shopping / credit score Q&A with Gina Pogol
Do mortgage pre-approvals affect credit score?
Yes, but only slightly. Credit bureaus penalize you a small amount for shopping for credit. That’s a precaution in case you are trying to solve financial problems with credit. But requesting a mortgage pre-approval without applying for other types of credit simultaneously will have little to no effect on your score.
Will shopping around for a mortgage hurt my score?
You have 14 days to get as many pre-approvals and rate quotes as you’d like — they all count as one inquiry if you are applying for the same type of credit.
How many points does your credit score go down for an inquiry?
About 5 points, but that could be lower or higher depending on your credit history. If you haven’t applied for much credit lately, a mortgage inquiry will probably have a minimal effect on your score.
How much does a mortgage affect credit score?
Having a mortgage and making all payments on time actually improves your credit score. It’s a big loan and a big responsibility. Managing it well proves you are a worthy of other types of credit.
What’s the mortgage credit pull window?
You have 14 days to shop for a mortgage once you’ve had your credit pulled. Within 14 days, all mortgage inquiries count as one.
The Final Take-Away
A mortgage credit inquiry does have a small effect on your score, but it’s still worth shopping around to find the right lender. Borrowers can save both money and headaches by doing some work to find the lender that you trust the most.