Does Shopping Around for Mortgage Rates Hurt Your Credit?

When consumers consider significant financial commitments, like a mortgage, a common concern arises about the potential impact on their credit score. Applying for a loan often involves a credit check, leading many to wonder if comparing offers from multiple lenders could negatively affect their financial standing. This article clarifies the relationship between shopping for mortgage rates and your credit score, explaining how the system allows for comparison shopping without undue harm.

Types of Credit Inquiries

When a lender accesses your credit information, it results in a credit inquiry, categorized into two main types: soft inquiries and hard inquiries. A soft inquiry occurs when an individual checks their own credit score or when a company pre-screens for an offer. These inquiries do not affect your credit score and are often not visible to lenders. For example, receiving a pre-approved credit card offer is typically the result of a soft inquiry.

In contrast, a hard inquiry happens when you formally apply for new credit, such as a mortgage, auto loan, or credit card, and the lender requests your full credit report to assess your creditworthiness. This type of inquiry requires your permission and can cause a small, temporary dip in your credit score, usually by less than five points. While a hard inquiry remains on your credit report for up to two years, its impact on your credit score lessens after a few months and typically fades within 12 months.

Mortgage Rate Shopping and Your Credit Score

Many consumers worry that applying for multiple mortgage pre-approvals will significantly harm their credit score due to numerous hard inquiries. However, credit scoring models, such as FICO and VantageScore, are designed to recognize and accommodate rate shopping for certain types of loans, including mortgages. They understand that consumers seek the best terms for a single loan, not multiple new credit lines.

To facilitate this, these models employ a “rate shopping window” or “deduplication period” during which multiple inquiries for the same type of loan are treated as a single inquiry. For FICO scores, this window can be 14 days for older versions or up to 45 days for newer models. VantageScore models typically use a 14-day rolling window. If you apply for several mortgage pre-approvals within this defined period, the inquiries will generally count as one for scoring purposes, minimizing the impact on your credit score.

Smart Strategies for Comparing Mortgage Offers

To effectively shop for mortgage rates while managing the impact on your credit, gather all necessary financial information before beginning the process. Aim to apply for pre-approvals from multiple lenders within the designated rate shopping window. This ensures credit scoring models treat your inquiries as a single event, preserving your credit score.

Once you receive pre-approval offers, lenders are required to provide a standardized Loan Estimate within three business days of your application. This document details the loan terms, estimated closing costs, and other fees, allowing for a direct comparison of different offers. Meticulously compare interest rates, annual percentage rates (APR), closing costs, and the estimated monthly payments across all Loan Estimates. Providing lenders with information such as your personal identification, Social Security card, recent pay stubs, bank statements, and tax documents will help expedite the pre-approval process. By carefully comparing these estimates, you can identify the most favorable terms and potentially save a significant amount of money over the life of the loan.