Applying for a Mortgage – Don't Worry About the Credit Check

If you are a first-time homebuyer or someone looking to refinance, you may be worried about the impact that multiple credit inquiries can have on your credit score. It’s a valid concern. Your score determines your interest rate, and a low rate can save you thousands over the years of the loan. 

Fear not the credit inquiry – as long as it is made within 14-45 days. Multiple inquiries from different lenders are usually considered a single inquiry. We will discuss rate shopping and the impact that numerous inquiries have on a mortgage loan. 

Just the Facts

You can shop with as many mortgage lenders as you wish. You are best off applying for at least three. Applying with more than one does not generally hurt your credit rating.

• Each lender will conduct a hard credit check.
• When mortgage shopping, multiple pulls count only as a single inquiry. However, have your plan in place. Pulls need to be done within 14-45 days (under 14 is better.)
• Keep your shopping within the 14 to 45-day window. Then you can get as many quotes as needed without worrying about damaging your credit.

Differences Between Hard and Soft Inquiries (Pulls)

A Hard Inquiry happens when a financial institution checks your report to make a lending decision. These are common when you apply for a:

• Mortgage
• Student loan
• Credit card
• Auto loan

These can impact your credit score, lowering it up to about 5 points.

A Soft Inquiry happens when there is a credit check for personal use like MyFico.com or part of a background check. A soft pull has no adverse effect on your credit score.

How many times will lenders check your credit for a mortgage?

This number can vary and can be up to three times during the process.

1. Preapproval – When you begin making offers on a home, you will want to have a solid preapproval for the loan. Getting a preapproval is an involved process where lenders verify your financial information. This includes:

• Income and employment
• Account balances
• Your debt-to-income ratio (DTI)
• Source of down payment
• Check for bankruptcy or foreclosure history

Preapproval and prequalification are not the same. A prequalification may only be a soft credit pull. In which case, the lender only has a range of what your score could be. For example (650 to 710). Some lenders will obtain basic personal details to give you “an idea” of what you can borrow. But keep in mind they do not verify your financial information.

2. During the application process – Depending on the lender and underwriter, a second hard pull is made if significant time passes between the preapproval and closing. The report’s validity is usually 90 to 120 days. So, beyond that timespan will mean a second pull.

If you haven’t locked in your interest rate yet, this second pull can be good and result in a higher score and lower rate for you if you have paid off debts.

3. Before closing – like number two, a lot of time will pass before the closing, and lenders want to confirm you are still a reasonable credit risk before the close. They will check if there are new credit inquiries and increased credit lines, such as a new card.

Any new debts affect your DTI. So, it is wise not to apply for anything when you are in the home buying process. If the reports don’t match, you will need to provide additional information and go through underwriting again.

The Effects of Mortgage Rate Shopping on Your Credit Score

Only a hard credit inquiry will have an impact on your credit report. Too many inquiries can have a significant impact because it tells a lender you are actively seeking more credit. That is unless you’re getting those pulls within the 14 to 45-day window, and they are of the same type (mortgage, auto, etc.)

Too much credit can put you into financial trouble. Data from MyFico shows that borrowers are eight times more likely to declare bankruptcy if they have six or more inquiries. A lower score means a higher rate, but a hard pull usually affects your score by fewer than 5 points. 

How many hard pulls can be made for a mortgage without impacting your credit score?

The scoring model will determine the time window for multiple credit inquiries, counting as a single inquiry. There are two main models lenders will use, VantageScore and FICO. FICO offers a 45-day window while Vantage 3.0 offers only 14 days, so ask the lender which model they use. If you have not decided on a lender, be conservative and keep your shopping to under 14 days. 

Check Your Credit Report

We now have relatively easy access to our credit reports. If you are searching for a home and have not looked at your report recently, it is wise to do your own pull from the three credit bureaus. The three credit bureaus are:

• Transunion
• Experian
• Equifax

Each allows one free copy of your credit report per year through the Annual Credit Report program. This report shows your history but not a score. This process is vital to identify any errors in your credit report. You will want to get these fixed before you talk to any lenders to ensure they will have accurate information when they conduct their hard pull.

Doing that will give you a better idea of what kind of lending will be available to you (or not). Remember, the better your score, the better rates and offers you will receive.

You can pay for a monthly service that monitors your score. That can be helpful before and during the mortgage process. But remember – your lender will pull your credit, and that’s the score they will use.

The Bottom Credit Line

When shopping for a mortgage, knowing how your score can be affected by a hard pull is essential, but don’t worry. Ask the lender what scoring method they use and when in doubt, keep your lender search to under 14 days. This way, the pulls will be considered a single inquiry, and it will have the most negligible effect on your score. Good luck with your home shopping.