Does Applying for a Mortgage Affect Your Credit Score?

Credit scores are numerical representations of an individual’s creditworthiness, typically ranging from 300 to 850. These scores offer lenders a quick assessment of how reliably a borrower manages debt. They play a significant role in various financial decisions, especially those involving substantial commitments like obtaining a mortgage. Understanding how activities, such as applying for a mortgage, can influence these scores is important for consumers.

Types of Credit Inquiries

Credit inquiries, records of requests to view a credit report, come in two primary forms: soft inquiries and hard inquiries. A soft inquiry occurs when a person or company checks credit information for reasons unrelated to a specific lending decision. Examples include checking your own credit score or report, pre-qualifying for a loan or credit card offer, or background checks for employment or insurance. These inquiries do not affect your credit score and may not even be visible to other lenders on your credit report.

In contrast, a hard inquiry takes place when a lender accesses your full credit file as part of an application for new credit. This typically happens when you apply for traditional credit products such as credit cards, auto loans, personal loans, or mortgages. For a hard inquiry to occur, the lender must have your explicit permission. Unlike soft inquiries, hard inquiries can temporarily impact your credit score.

Mortgage Applications and Hard Inquiries

Applying for a mortgage results in a hard inquiry on your credit report. Lenders require a comprehensive review of a borrower’s credit history to assess their ability to repay a large loan. This thorough assessment involves pulling a full credit report from one or more of the major credit bureaus (Experian, TransUnion, and Equifax). The act of a lender requesting and reviewing this detailed report, with the applicant’s consent, is then recorded as a hard inquiry by the credit bureaus.

This process is a standard component of mortgage underwriting. Lenders use the information from the hard inquiry to evaluate creditworthiness, determine eligibility for a loan, and set interest rates and terms. Without this insight, lenders cannot accurately gauge the risk of extending such credit. Therefore, a hard inquiry is an expected part of submitting a mortgage application.

The Effect on Your Credit Score

A hard inquiry typically causes a small, temporary dip in your credit score, usually by fewer than five points. While the exact impact varies based on credit history, this reduction is minimal and short-lived. Hard inquiries remain on your credit report for up to two years, but their influence on your credit score typically diminishes after a few months and affects the score for about 12 months.

An important consideration for mortgage applicants is the “rate shopping” rule. Credit scoring models recognize that consumers often compare loan offers to secure the best terms. To accommodate this, multiple inquiries for the same type of loan, such as a mortgage, within a specific timeframe are usually treated as a single inquiry for scoring purposes. For FICO scores, this window can be 14 to 45 days, with newer versions typically using a 45-day period. VantageScore models generally count inquiries within a 14-day rolling window as one. This rule allows prospective homebuyers to shop around for the most favorable mortgage rates without significantly harming their credit score with each inquiry.