How to Shop for a Mortgage Without Hurting Your Credit Score

You finally found the perfect home, and you’re ready to go rate shopping for a mortgage. If you want to make sure you shop for a mortgage without hurting your credit score, there’s a simple strategy you can use that will limit the impact.

Here’s why comparing rates can lower your credit score: Each time you apply for a home loan, a mortgage lender does an in-depth review of your credit report. This action is referred to as a hard inquiry, and it can impact your score.

[Read: Best FHA Loans.]

Types of Credit Inquiries

There are two types of credit inquiries.

Hard inquiry, or hard pull: A hard inquiry occurs when a creditor takes an in-depth look at your credit report after you have applied for credit. A hard inquiry can hurt your credit score, and you could lose anywhere from zero to five points. Getting preapproved for a mortgage or applying for a credit card are examples of hard inquiries.

Soft inquiry, or soft pull: A soft inquiry is more of a brief look at your credit report, and it’s used for specific purposes, such as getting prequalified for a mortgage. Another example is when a credit card issuer looks at your report to see if you might qualify for a credit card offer. When you review your own report, that’s also an example of a soft inquiry. Soft inquiries do not affect your credit score.

When a lender requests your report to do a deep dive into the contents — a hard credit pull — each inquiry has the possibility of decreasing your credit score from zero to five points. Note that’s each time you apply. Since a few points on your credit score can mean the difference between getting the lowest interest rate or the next-lowest rate, you need to pay attention to the calendar.

For mortgage applications, most lenders will request your report from all three major credit bureaus: Equifax, TransUnion and Experian. So it’s a good idea to look at your own credit reports before you apply for a mortgage. You want to make sure they are accurate and free from any errors that could drag down your score.

[Read: Best Mortgage Lenders.]

Check Your Credit Report

You want to inspect your reports for errors or for signs of fraud. Here are some common mistakes on credit reports, according to the Consumer Financial Protection Bureau:

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. Keep in mind that there can be timing issues when you look at balances on your credit report. When payment history is reported to the bureaus, it isn’t updated instantaneously. There’s a lag time to verify the new information before the data is updated on your report.

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 right now. The three credit bureaus expanded access to credit reports through December 2022.

[Read: Best Mortgage Refinance Lenders.]

How to Get Prequalified for a Mortgage

You can contact a lender and ask for prequalification before you start your home search. This step can keep you from wasting your time on homes that you can’t qualify for. Sometimes, this is just a conversation you have with the lender, or it could be a soft inquiry if the lender looks at your credit report.

A prequalification tells a prospective seller that you appear qualified to ask for a mortgage at a certain loan amount. You’ll often get a letter stating this that you can show to your agent or to the seller. But it doesn’t mean you’d absolutely get approved for the loan, because there could be something in your credit report or finances that might come up during a hard inquiry.

If you’re confident you can afford and get approved for a certain loan amount, then you can skip prequalification and go straight for preapproval. Only take this step if you’re serious about buying a home soon. Getting preapproved means the lender will do a deep dive into your credit report and finances. This results in a hard inquiry, which can impact your score.

Mortgage Credit Pull Window

Though getting preapproved generates a hard inquiry, you can get as many mortgage rate estimates as you would like with minimum damage to your credit score if you do it within a 14-day window. This is often referred to as the “mortgage credit pull window.”

Credit checks from lenders within that window will count as a single inquiry on your credit report by the FICO score algorithm. With FICO scores, you actually have a 45-day window for rate shopping, but some older FICO scores limit it to 14 days. Likewise, VantageScore only allows a two-week period for mortgage shopping. Since you don’t know which score will be used by your lender, get your rate shopping done within two weeks.

It might seem difficult to complete your search for a mortgage in such a short period. But doing your comparison shopping within two weeks has another benefit. In today’s housing market, mortgage rates are on the rise. You want to find a mortgage lender and lock in a rate as soon as possible. Also, there most likely will be competition for the home you want to bid on. So, you’ll protect your score and secure a lower rate if you’re organized and complete the preapproval process as soon as you can.

Stop Applying for New Credit

Don’t apply for credit cards, personal loans or any other type of credit until you’re approved for a mortgage. While you are trying to take out a mortgage, your focus has to be on protecting your score so it’s as high as it can possibly be.

Applying for credit can not only lower your credit score, but it can also increase your debt-to-income ratio, which plays a role in whether you qualify for a mortgage. After you get approved for a mortgage and the dust has settled a bit, then you can apply for credit when you need it.

Pay Your Bills on Time

Making timely payments should be part of your financial life, anyway. If it isn’t, then it’s probably reflected in your credit score. Payment history is 35% of your FICO score, so it’s the biggest factor considered by the score’s algorithm.

So failing to pay bills on time can quickly lower your credit score. It’s essential to pay your bills on time to get approved for a mortgage, but it’s also a habit you need to adopt going forward in order to have a healthy credit score.

More from U.S. News

Complete Timeline of the Mortgage Process

How Does Home Loan Underwriting Work?

How to Pay Off Your Mortgage Faster

How to Shop for a Mortgage Without Hurting Your Credit Score originally appeared on usnews.com

Update 04/20/22:

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