Many homebuyers worry that having their credit checked for a mortgage will cause a major drop in their credit score. In reality, a mortgage credit inquiry typically has a relatively small impact on your score, and rate-shopping inquiries are treated differently from repeatedly applying for new credit cards or other types of debt.
Understanding the difference between a soft credit check and a hard credit inquiry can make the mortgage process much less intimidating.
What Is a Credit Inquiry?
A credit inquiry occurs when someone accesses your credit report. There are two main types of inquiries: soft inquiries and hard inquiries.
Soft credit inquiries do not affect your credit score. These may occur when you check your own credit, receive certain pre-screened offers, or when a lender performs a soft credit review.
Hard credit inquiries generally occur when you formally apply for credit, such as a mortgage, auto loan or credit card. A hard inquiry can have a small, temporary effect on your credit score.
Will a Mortgage Credit Check Lower My Credit Score?
A mortgage credit inquiry may cause a small change in your credit score, but for most borrowers the impact is limited.
Credit scoring models recognize that consumers often compare mortgage offers from more than one lender. Because of this, multiple mortgage inquiries made within a relatively short rate-shopping period are generally grouped together and treated as a single inquiry for scoring purposes.
The exact rate-shopping window depends on the credit scoring model being used. Newer FICO scoring models generally use a 45-day shopping window, while some older models may use a shorter period, such as 14 days.
Can I Shop Mortgage Rates Without Hurting My Credit?
Yes. Consumers are generally encouraged to compare mortgage options rather than avoiding rate shopping because of concerns about credit inquiries.
If several mortgage lenders pull your credit within the applicable rate-shopping window, the scoring models are designed to recognize that you are shopping for one mortgage rather than attempting to open several unrelated credit accounts.
That does not mean you should allow unnecessary credit inquiries over a long period of time. It is still a good idea to keep your mortgage shopping focused within a relatively short timeframe.
What Can Affect Your Credit More Than a Mortgage Inquiry?
The credit inquiry itself is usually only a small part of your overall credit profile. Factors such as payment history, credit card balances, overall debt, length of credit history and newly opened accounts can have a much greater effect on your credit score.
While preparing to buy a home, it is especially important to avoid making unnecessary changes to your credit profile.
- Do not open new credit cards unless necessary.
- Avoid financing furniture or large purchases before closing.
- Be cautious about buying or leasing a new vehicle.
- Keep credit card balances as low as reasonably possible.
- Continue making all payments on time.
- Do not close existing credit accounts without first discussing it with your mortgage professional.
New debt or changes to your credit profile during the mortgage process can affect your credit score, debt-to-income ratio or mortgage approval.
Not Ready for a Full Credit Pull?
Some homebuyers want to understand where they stand but are not yet comfortable having a full mortgage credit report pulled.
We offer a soft credit check for buyers who are still in the early stages of the process. A soft credit inquiry allows us to review important credit information without affecting your credit score.
This can be especially helpful if you are several months away from buying, want to identify potential credit issues early, or simply want to better understand your mortgage options before formally moving forward.
When Is a Full Mortgage Credit Report Required?
Once you are under contract and moving forward with the mortgage process, we will need to obtain a full tri-merge credit report from the three major credit bureaus as part of the loan approval process.
At that point, the credit report becomes part of the complete mortgage underwriting process and is used along with your income, assets, debts and other qualifying information.
Should You Be Afraid to Have Your Credit Checked?
No. A credit check is a normal part of evaluating mortgage options, and avoiding a credit review altogether can sometimes delay the opportunity to identify and correct issues before you are ready to buy a home.
If you are concerned about your credit, starting with a soft credit check can be a good way to understand your situation without affecting your score.
Questions About Your Credit or Mortgage Options?
If you are considering buying a home and have questions about your credit, we are happy to help you understand where you stand and what steps may make sense before you begin the mortgage process.
Have questions? Contact us here, or call (240) 670-5090.
Ready to explore your mortgage options? Pre-Qualify Here.
Credit scoring models, lender requirements and mortgage guidelines can vary. A credit score is only one factor considered during the mortgage qualification process.
