Your credit score plays a crucial role in determining your home loan eligibility and interest rate. However, many homebuyers worry about multiple credit checks hurting their score when they’re shopping around for rates. Below, we’ve provided some information about how credit inquiries affect your mortgage loan application.
Types of Credit Inquiries
Credit inquiries can fall into two categories: hard and soft. Understanding the difference can help you make better decisions during your home-buying journey.
Hard inquiries happen when lenders check your credit for loan decisions. These can lower your score by a few points. They remain on your report for about two years. Too many hard inquiries may signal financial distress to potential lenders.
Soft inquiries occur when you check your own credit or receive pre-approval offers. These don’t affect your score. Lenders can’t see them when reviewing your credit. You can have unlimited soft inquiries without any negative impact.
How Shopping for a Mortgage Affects Your Credit
Credit scoring models understand the importance of comparing mortgage rates. They recognize this as smart financial planning, not risky behavior.
Multiple mortgage applications submitted within 14-45 days of each other usually count as one inquiry. This allows you to shop around without hurting your credit score. The exact timeframe depends on which credit scoring model your lender uses. FICO’s newer models use a 45-day window for rate shopping.
Your mortgage loan application deserves careful consideration of multiple offers. This special treatment only applies to mortgage, auto, and student loan inquiries. Credit cards and other loans don’t receive this same bundling benefit.
Managing Your Credit During the Mortgage Process
It’s important to practice good credit habits during the mortgage application period. Here are strategies we recommend to our clients:
- Complete all mortgage applications within a 14-day window to count as a single inquiry
- Avoid applying for other credit during your mortgage application process
- Make all existing loan payments on time
- Keep credit card balances low for a good debt-to-income ratio
- Review your credit report before applying to fix any errors
After You’ve Been Prequalified
Be careful with taking out new credit after you’ve been prequalified for a mortgage loan. Lenders often check your credit again before closing. New inquiries during this time could raise red flags.
Therefore, you will want to wait until after closing to finance furniture or appliances. Even a small change in your credit score could affect your loan terms.
Your debt-to-income ratio remains important throughout the entire process. New credit lines can change this ratio at the worst possible time.
Ready to Take the Next Step?
At Mortgage Solutions Financial, we’re committed to helping you navigate the mortgage process. Our team has helped countless clients achieve their homeownership dreams despite credit challenges. Contact us today to make your homeownership dreams a reality.
