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How to Shop for a Mortgage Without Hurting Your Credit Score

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How to Shop for a Mortgage Without Hurting Your Credit Score

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If you're seeking the best mortgage rates, shop carefully or your credit score might suffer. Each time you apply for a home loan, a mortgage lender will make a credit inquiry to review your credit history. These inquiries are reported to the three major credit bureaus: Equifax, Experian and TransUnion.

Because inquiries signal you’re thinking of taking on new debt, your credit score can dip. But the good news is  these steps can reduce the risk of damaging your score:

damages
Check your credit report Knowing your score before you shop can help you spot and then correct errors causing an unjustified drop in your credit score.
Shop for a mortgage within a 45-day window In most cases, your credit score will not be hurt if you stick to this rule.
Prequalify for a mortgage The lender uses a soft pull instead of a credit-damaging hard pull to produce a snapshot of how much you might be able to borrow.
Limit borrowing activity New debt can hurt your credit score, which in turn can make your mortgage more expensive.
Pay for bills on time Missing payments is a surefire way to lower your credit score.

Here’s more about how to shop for a mortgage without hurting your credit score.

Check your credit report

Before you begin shopping for a mortgage, look at your credit report from each of the bureaus. Fortunately, checking your own credit report doesn’t damage your credit score.

Inspect for errors. Common mistakes on credit reports, according to the Consumer Financial Protection Bureau, involve:

mistakes
Personal information Check for identity errors, such as a wrong name, address or phone number; accounts with similarly named owners; and incorrect accounts resulting from identity theft.
Account status This might include closed accounts reported as open, accounts mistakenly labeled as delinquent or debts that wrongly appear more than once.
Data management Look for false information that reappears on a report after you corrected it or accounts that show up several times and list different creditors.
Account balances Review your reports for incorrect balances or credit limits.

Although federal law entitles you to a free copy of each credit report every 12 months at AnnualCreditReport.com, you can access your credit reports weekly during the pandemic. The three credit bureaus expanded access to credit reports through April 20, 2022.

You might have to pay to check your credit score, although a growing number of banks, credit unions and credit card companies offer free access to scores as a perk for customers.

Shop within a 45-day window

You can get as many loan estimates as you’d like and they won't hurt your credit, as long as you get them all within a 45-day window, according to the Consumer Financial Protection Bureau (CFPB). Credit checks from lenders within that window will count as a single inquiry on your credit report.

If you want to be extra-cautious, you can rate shop within a 14-day window instead. Occasionally, lenders use older FICO scoring models with this shorter window for counting multiple credit inquiries as one inquiry, says Joanne Gaskin, Vice President of Scores and Analytics at FICO.

Two weeks might not seem long enough to complete your comparison shopping, but most borrowers should be able to finish within that window, says John Ulzheimer, a credit specialist who formerly worked for FICO and Equifax.

"It really shouldn't be that hard for you to do almost all of your rate shopping within a few days if you're really aggressive about it – certainly a week, certainly two weeks and absolutely within a month," he says.

Even if your shopping extends past 45 days, try not to sweat it. Your savings from a lower mortgage rate often far outweighs any short-term damage to your credit score from credit inquiries.

Gaskin adds, "The FICO score does count inquiries, but it's one of the smaller pieces of the pie."

New credit makes up just 10% of your overall FICO score, she says.
One inquiry likely won't cause much damage if you have a solid credit record, Gaskin says. "A consumer who has sufficient experience and hasn't taken on any debt recently, they may not see any impact at all, or they may see something like (a drop of) five points."

In contrast, newer borrowers might face a slightly higher risk of damage from credit inquiries. Pinning down exactly how much damage a new borrower's credit score might suffer from multiple inquiries can be difficult. Even so, the impact should be minor.

Take advantage of prequalifying

If you're concerned about inquiries damaging your credit score, consider prequalifying for mortgages. When you prequalify, the lender uses a soft credit inquiry to estimate how much you might be able to borrow.

"It's a good first step in the process," Gaskin says. "You can visit the lender's website, put in some information and see what type of offers they may be able to make for you."

As long as the lender uses a soft inquiry for prequalification, your credit won't be affected. That's why prequalification can be a smart option for many borrowers.
If you’re trying to shop for a mortgage without hurting your credit, you’ll need to know the difference between soft and hard credit inquiries.

inquiry
Hard inquiry or hard pull A hard inquiry occurs when a creditor looks at your credit report after you’ve applied for credit. Lenders use hard inquiries for mortgage preapprovals and applications. A hard inquiry can hurt your credit score.
Soft inquiry or soft pull Lenders use less rigorous soft inquiries for prescreening your credit file. Soft inquiries don’t affect credit scores.

If you're prequalified, you’ll receive a letter from the lender estimating how much you can borrow. You can show this to an agent or seller as proof you’re working with a lender.

Prequalifying can also be helpful because it sets a price point for home shopping, Ulzheimer says. "If you can prequalify for $300,000, you shouldn't be looking at $700,000 houses," he says.

Limit other borrowing

Don't open other lines of credit while you’re trying to take out a mortgage.
In fact, applying for a credit card or auto loan while shopping for a mortgage is far riskier than ignoring the 45-day window for rate shopping, Ulzheimer says.

Applying for credit can affect your credit score and increase your debt-to-income ratio, which plays a role in whether you qualify for a mortgage.

"Wait till you have the keys – wait till the closing is done," Ulzheimer says. "If you want to go out and apply for new credit after the closing is done, then fine."

Pay your bills on time

Finally, pay all bills on time when shopping for a mortgage. In truth, you should always do this.

Failing to pay bills on time can quickly lower your credit score. Also, a recent late payment could be more damaging to your score than several late payments that happened a long time ago.