How to Shop for a Mortgage Without Impacting Your Credit Score

This would be counterproductive to your mortgage application because your credit score has a significant bearing on the type of mortgage and terms you will get. Consequently, if your credit score is not very good, having it drop a few more points can hinder you from getting the kind of deal you’re looking for.

So, how can you shop for a mortgage without ruining your credit score? In this guide, we will look at how mortgage rates shopping damages your credit score and give you practical tips on how you can maintain a good credit profile while shopping for the best mortgage rates.

How Does Shopping For Mortgage Affect Your Credit Score?

As mentioned initially, conducting multiple mortgage inquiries simultaneously can lower your credit score by several points. This is because mortgage lenders have to perform a hard credit check (also known as a hard inquiry) on your credit every time you request a mortgage quote. This is typically done to determine the amount of mortgage you can qualify for. Generally, the higher your credit score, the better your chances of securing a favorable deal.

In general, a hard inquiry will lower your FICO score by 5 points or less, depending on the strength of your credit score. With that being said, not every hard inquiry will reduce your credit score by 5 points. If you make multiple mortgage quotes within the credit pull window, they will be treated as a single inquiry. On the other hand, if you make similar mortgage quotes outside that window, they will impact your credit score individually.

It is worth noting that the credit pull window might vary depending on the FICO scoring model used by the lenders you approach. If you’re requesting mortgage quotes from lenders who use recent FICO scoring models, the 45-day credit pull window applies. Multiple credit inquiries made during that period will be recorded as a single inquiry on your credit report. Conversely, if you’re approaching lenders who use older FICO scoring models, the window for having multiple inquiries grouped into one single inquiry can be as little as 14 days.

Since it may not be possible to tell what FICO scoring model your prospective mortgage lenders will use, it is always advisable to err on caution. It would help if you tried to complete your mortgage shopping within 14 days to minimize the impact on your credit score.

How To Shop For A Mortgage Without Hurting Your Credit Score

When seeking to finance a home through a mortgage, you want to secure the best deal you can get, so shopping around is so important. Mortgage quotes can lower your credit score and might cause concern since any prospective lenders you engage with will be looking at your credit profile when considering your application.

Nevertheless, there are several strategies that you can employ when shopping for a mortgage to minimize the impact on your credit score.

Try To Shop Within A Short Timeframe

When shopping for a mortgage to finance your home purchase, you should be conscious of inquiry rules. A credit inquiry occurs when a mortgage lender performs a hard credit check on your credit report through a credit bureau. While a single mortgage quote is not likely to impact your credit report, multiple applications from different lenders can significantly lower your credit score and hurt your chances of securing the kind of mortgage you’re seeking.

For this reason, you must take advantage of the credit pull window to protect your credit profile. As mentioned before, different lenders use different scoring models with different credit pull windows. While a 45-day credit pull window applies for lenders using the new FICO model, the credit pull window for lenders using older scoring models can be as short as 14 days. This means that every application you make outside of this period will affect a hard inquiry which will drop your credit score by 3- 5 points.

So, if you apply for a mortgage from 7 different lenders, the hard inquiries on each of these applications could potentially lower your credit score by up to 35 points. On the other hand, if you make all the applications within a two-week period, all the hard inquiries will be lumped into one and treated as a single inquiry, which means your credit score will only be lowered by 3 to 5 points which isn’t so bad. As you can imagine, this can significantly hurt your chances of getting a favorable mortgage, especially if your credit score isn’t so great to begin with.

Work On Building Up Your Credit Profile

In general, multiple mortgage quotes are more likely to hurt your prospect of securing a mortgage if you already have a low credit score. Supposing you have a FICO score above 700, losing 50 points from hard inquiries won’t significantly impact your ability to secure a mortgage with favorable terms.

By contrast, if you have a credit score of 500, losing the same amount of points drastically reduces your chances of being approved for some mortgages. Even if you manage to secure one, the interest rates and down payment are likely to be relatively high.

For this reason, it is essential to improve your credit score before you start shopping for a mortgage. This will help buffer your credit profile against any losses you might experience from hard inquiries.

Here are some of the things you can do to build up your credit score when seeking a mortgage:

Pull Up Your Credit Report and Examine Them For Any Errors

Mortgage lenders usually look at various aspects of your credit profile when deciding whether or not to approve you for a mortgage. Knowing what’s in your credit report is imperative before applying for a mortgage. To do so, request a free credit report from each of the three credit bureaus (Experian, Equifax, and TransUnion) and review them individually to ascertain whether they are correct and up-to-date.

If you receive all three credit reports at the same time, don’t be shocked if they differ slightly. In some cases, your lenders might not report all of your accounts to all three credit agencies, or they may provide updates on somewhat different schedules. So don’t be startled if your TransUnion record shows your most recent credit card payment, but your Equifax report doesn’t.

It is also a good idea to check your FICO score when reviewing your credit profile. Your credit score essentially summarizes your entire credit profile into a three-digit number. Consequently, if there are any improvements to your credit reports, your score will increase once that information has been made available to the credit bureaus.

Refrain From Taking On New Credit

If you’re purchasing a new home through a mortgage, you might also be considering buying new furniture for your rooms or a new car for your driveway. However, it is generally recommended to hold off any new loans or credit applications until you’ve secured the mortgage.

Whenever you apply for new credit or take on more debt, the statistical risk that you will default on your debts rises significantly. This can make your credit profile suspicious to potential mortgage lenders and discourage them from providing you with a loan.

For this reason, you should endeavor to keep your credit reports as clean as possible when sending applications to prospective mortgage lenders. This means deferring credit applications until you have firmly locked down the mortgage.

In the same breath, it is not advisable to close all your paid-off cards at the same time. Instead, you should keep your accounts open until you have secured your mortgage. Doing so can increase your credit utilization ratio and make your credit history shorter and less varied, hurting your credit score.

Pay Down Your Credit Card Debts

If your credit score is less than flowery, one of the best ways to improve it is by paying down your credit card debts. If you can pay off all your debts at once, this will immediately raise your credit score and improve your chances with mortgage lenders. However, this may not be feasible within a brief period. In such a scenario, it is better to be strategic about how you navigate your credit card payments.

One of the best options you might consider is debt consolidation. This form of debt refinancing entails taking a new loan to pay off multiple consumer debts and other liabilities. In other words, you lump several debts into one and pay them off using a single large payment.

If you have several high-interest loans that you are servicing every month, debt consolidation is a rational choice since you’ll have a lower interest rate and fewer payments to deal with. Nevertheless, this strategy may only be practical if your credit score has improved since applying for the original loans. Consolidating your obligations may not make sense if your credit score isn’t high enough to qualify for a cheaper interest rate.

Likewise, you might want to reconsider debt consolidation if you haven’t addressed the underlying issues that lead to your present debts, such as overspending. Paying down numerous credit cards with a debt consolidation loan is not an excuse to rack up new debt, and it can lead to more serious financial problems later.

Pay Your Bills On Time

Making timely payments is one of the most effective ways to build up your credit score. After all, your payment history accounts for at least 35% of your FICO score. Consequently, even a single late payment or missed payment can hurt your credit profile and reduce your chances of qualifying for the kind of mortgage you want. To prevent this, you should always ensure your household utility bills, phone bills, and any personal loans you might be servicing are paid on time during the months leading up to your mortgage application.

If making timely bill payments is a challenge for you, consider adopting technology to help you in this regard. Automated electronic payments, for instance, can help you avoid falling behind on your bill payments. Likewise, you can use calendar reminders and text-message email reminders to alert you when your bills are due so that you pay them on time.

You should do whatever it takes to avoid late or missed payments on bills since a late bill payment in the 12 months leading up to a mortgage application would undoubtedly be viewed as a significant red signal by your lenders. While it may not necessarily preclude you from acquiring a mortgage, it might make you appear to be a high-risk borrower, resulting in higher interest rates.

Look Up Different Mortgage Lenders and Shortlist Them

When buying anything expensive, such as a home, it’s only reasonable to want to obtain the best bargain possible. So, naturally, you’ll be inclined to reach out to every lender you can find to inquire about their rates. Unfortunately, this can be very time-consuming and less effective in shopping for mortgage rates.

It is now feasible to identify potential lenders and their rates via the internet. You can also use online mortgage calculators to see what rates lenders are providing based on your region, credit score, and the term of your loan. Conducting prior research on these lenders will assist you in compiling a selection of ideal lenders for you. You can then narrow down your mortgage options by creating a shortlist.

If you locate potential lenders after searching on the internet, don’t call them right away and have them perform a hard inquiry on your credit record. Instead, please make a list of the top 10 lenders based on your study, ranking them in order of most to least suitable. Once you’ve shortlisted your lenders, you can then move to the mortgage pre-qualification stage.

Get Pre-Qualified

The terms mortgage pre-qualification and pre-approval are often used interchangeably, although they are two distinct processes. Pre-qualification for a mortgage is usually a simple and free procedure that helps you establish whether you qualify for a mortgage without the need for a credit check. The pre-qualification process also gives you a rough estimate of how much money you can realistically borrow from a mortgage lender.

Since the pre-qualification screening is not in-depth, you won’t know the actual mortgage rates you’ll obtain at this time, but it will let you identify which lenders might qualify you for a mortgage. The pre-qualification will let you know how much house you can afford.

There is no need for credit checks during pre-qualification since lenders typically make their decisions on the information you supply them or a soft credit check that does not affect your credit score. This is why you should review your credit report to provide your potential mortgage lenders with your credit score during the process of mortgage pre-qualification.

A Final Word

Maintaining a good credit profile is vital when applying for a mortgage. Your credit report will come under serious scrutiny by mortgage lenders when they evaluate your application. While shopping for a mortgage will undoubtedly impact your credit score due to the challenging inquiries generated by credit report pulls, you can minimize this effect by being smart about your shopping strategy.

Taking advantage of the credit pull window to shop within a short time frame will reduce the number of hard inquiries generated on your report. You can also work on improving your credit score before applying for a mortgage. This will ensure that your credit score remains attractive to prospective lenders even if it drops a few points after hard inquiries.