Protect Your Credit Score While Shopping for a Mortgage

When you're in the market for a mortgage, it's natural to worry about how shopping around might affect your credit score. Let's break down the key points you need to know:

Hard Inquiries vs. Soft Inquiries

• Hard Inquiries: These occur when a lender checks your credit report to make a lending decision. They can slightly lower your credit score and typically remain on your report for up to two years.
• Soft Inquiries: These are checks made by you or a company for non-lending purposes, such as background checks or pre-approved offers. They have no impact on your credit score.

Rate Shopping and Its Impact

• Grouping of Inquiries: Credit bureaus like Equifax often group multiple mortgage inquiries within a specific timeframe (usually 14-45 days) into a single inquiry. This helps minimize the negative impact on your credit score when you're shopping for a mortgage.
• Other Credit Inquiries: It's important to remember that this grouping only applies to mortgage inquiries. Other types of credit inquiries, such as credit card applications or auto loans, are treated individually and can each negatively affect your credit score.

Tips for Minimizing Impact

• Time Your Inquiries: Try to conduct your mortgage shopping within a condensed period to limit the number of hard inquiries on your credit report.
• Check Your Credit Report: Before you start shopping, review your credit report for errors and take steps to improve your credit score if necessary.
• Limit Other Credit Applications: Avoid applying for other types of credit while you're shopping for a mortgage to prevent additional hard inquiries.

Conclusion

When shopping for a mortgage, you might encounter hard inquiries on your credit report. However, Working with a mortgage broker can further reduce the effect on your credit score. Brokers typically perform a single inquiry to review your credit, which they can then use to compare various loan options. This approach allows you to explore different lenders without causing multiple negative impacts on your credit profile.