You might be worried about your credit report being accessed several times quickly when getting ready to apply for a mortgage.
This can happen while looking for the ideal mortgage over the course of a few weeks or even months with multiple mortgage lenders or mortgage brokers.
However, even though mortgage inquiries can add up, they won’t necessarily lower your credit score or make it more difficult for you to get a home loan.
It’s Totally Fine to Shop Around for a Mortgage!
Knowing how mortgage shopping operates, the FICO score’s creators have modified their highly-secret algorithm.
First of all, FICO disregards any mortgage inquiries made within the 30-day scoring window, so recent credit pulls shouldn’t have a negative impact on your credit scores.
For instance, if mortgage lender A runs your credit and you decide to request quotes from and/or pre-approval from mortgage lenders B and C in the same week, neither action would be considered a negative.
As a result, you can shop without worrying that your credit scores will decline as you do so.
Furthermore, FICO counts each mortgage inquiry made within a specific time frame as a single inquiry.
The FICO Mortgage Shopping Period
If you shop for a mortgage over several months, it will consider all of your previous inquiries that were submitted during the designated shopping periods as a single inquiry.
Therefore, if you shopped around with mortgage lenders A, B, and C over the course of a 14-day period two months ago but ultimately decided not to close your loan, those three credit pulls would only count as one if you were to repeat the process.
In contrast to a single credit card application, obtaining a home loan may necessitate multiple credit pulls from a variety of lenders.
If several similar inquiries are made within a certain time frame, they group them together to avoid giving the impression that you are on a debt binge.
In the end, it wouldn’t matter if 10 mortgage lenders pulled your credit in a week; it would only count as one inquiry.
Depending on which version of the FICO scoring formula is being used, this window of opportunity can last anywhere between 14 and 45 days.
The most recent version of FICO permits 45 days of shopping, while the oldest only permits 14 days. Unfortunately, many mortgage lenders use older versions of FICO.
In any case, if you already have a good credit score, one credit inquiry will probably only reduce it by five points or less, so it might not even be a concern.
The impact of mortgage inquiries on consumers will, of course, vary depending on their credit profiles, so there is no hard and fast rule.
A mortgage inquiry will likely have a bigger, negative effect on people with little or damaged credit history, while having very little of an impact on people with long histories of good credit.
Another reason to work toward having the highest credit score is this. You might need a small safety net in case some difficult questions cause your scores to drop.
For instance, aim for a 760 FICO score even if the lowest mortgage rate is only available at a 740 FICO score.
Do Mortgage Quotes Affect Credit Scores?
We’ve discussed mortgage inquiries, but what about simple mortgage quotes?
So long as the lender uses a service that only generates a soft inquiry or doesn’t actually pull your credit, it won’t even slightly harm your credit.
Your credit will be unaffected if all you’re doing is calling different lenders or brokers to compare rates.
Giving these people a rough estimate of your FICO score and requesting a quote for rates is perfectly acceptable.
It’s true that your actual credit scores may change depending on whether and when you apply, but these days it’s fairly simple to check your credit for free and use that as an estimate.
Since these free services are provided directly by the credit bureaus, your actual scores shouldn’t differ significantly, making this a good substitute for shopping without letting creditors view your actual credit report and scores.
You can allow them to obtain your actual credit report and lock in pricing once you have a better idea of which mortgage lender you want to work with moving forward.
What If Your Credit Score Goes Down Before Applying for a Mortgage?
In some circumstances, a few points less on your credit score could result in an increase in your mortgage rate or utterly jeopardize your loan application.
For instance, the standard cutoff for mortgages backed by Freddie Mac and Fannie Mae is a FICO score of 620.
If one of your scores dropped from 625 to 619 just before you applied, you might not be successful.
If your credit score is just below a certain threshold, and everything else on your credit report is the same except for the mortgage inquiries, you might be able to use an older credit report.
Or, if you have a good and convincing reason, you can request a loan exception from the lender.
It wouldn’t be fair to punish you for merely looking around for the best mortgage rate, after all.
As an alternative, you could make a few quick changes to your behavior to raise your scores, like paying off some debt to lower your credit utilization.
Then look into a rapid rescore. Your loan officer or mortgage broker should be knowledgeable in this area to be of assistance.
Healthy Credit Habits Are Way More Important Than a Few Mortgage Inquiries
Personally, I believe that FICO should lengthen their rate-shopping window across all versions and make it crystal clear that both potential buyers and current homeowners won’t be penalized for doing so.
However, paying bills on time and maintaining a low balance on your credit cards are much more important than stressing out about a few mortgage inquiries.
And getting the best mortgage should be your top priority, not worrying about a few points on your credit score.
Before you start looking for a mortgage, be aware of all three of your FICO scores to prevent unpleasant surprises.
Even if you see an inquiry on your credit report, pulling your own credit won’t affect your score because you’re not applying for new credit. It’s only visible to you.
As mentioned, having a buffer above what is absolutely necessary can be useful if your scores do slightly decline.
One last reminder: Before or during the mortgage shopping process, do not apply for any other type of credit (credit cards, auto loans, etc.).
Doing so will undoubtedly lower your credit scores, which may make it impossible for you to get that mortgage. And if it involves a brand-new purchase, it might raise your debt to income ratio!
What credit score is necessary for a mortgage?
Do mortgage hard inquiries affect credit score?
It’s crucial to be aware that there are two different kinds of credit inquiries. The FICO Score is unaffected by soft inquiries, such as viewing your own credit report. Your credit score will be impacted by hard inquiries, such as actively applying for a new credit card or mortgage.
How many credit inquiries is too many for mortgage?
Six inquiries are frequently deemed excessive by lenders in order to approve a loan or bank card. If you’re looking for a particular kind of loan, you might not experience any negative effects even if you have several hard inquiries on your report in a short period of time.
Is a mortgage inquiry a hard inquiry?
You must give permission for a hard inquiry, also known as a hard pull or hard credit check. When you apply for credit, whether for a mortgage, credit card, auto loan, student loan, or personal loan, it is triggered. If you are only seeking pre-qualification to determine whether to apply, it does not occur.