How Many Points Does Your Credit Drop for a Mortgage?

Applying for a mortgage is a significant financial step, and many individuals are concerned about how this process might affect their credit score. While a temporary dip in your credit score can occur, the impact is often less severe than people anticipate. This article explains how credit inquiries affect your score during the mortgage application process.

Understanding Credit Inquiries

Two primary types of credit inquiries appear on your credit report: soft and hard. A soft inquiry occurs when a person or company checks your credit for informational purposes, such as when you check your own score or receive a pre-approved offer. These inquiries do not impact your credit score.

A hard inquiry happens when a lender formally checks your credit history because you have applied for a new line of credit, like a mortgage, credit card, or auto loan. This indicates to other lenders that you are seeking new debt. Mortgage applications always result in a hard inquiry, which can slightly influence your credit score.

Typical Credit Score Impact of a Mortgage Application

A single mortgage application typically results in a minimal credit score reduction, often between zero and five points. For those with an established credit history, this impact is generally very small and may not even be noticeable.

This temporary score drop is usually short-lived, with scores often recovering within a few months, assuming other credit behaviors remain positive. A single hard inquiry for a mortgage is generally not a major factor in long-term credit health for those who consistently manage their credit responsibly. While hard inquiries remain on a credit report for up to two years, their effect on your credit score typically diminishes after about twelve months.

Factors Affecting the Score Drop

The number of points a credit score drops following a mortgage application depends on several individual factors. A shorter credit history might experience a more noticeable impact from a hard inquiry than a long-standing one, as newer credit profiles have less data to absorb the slight negative effect.

The number of existing credit accounts and current debt levels also play a role. If an individual has very few existing accounts or high balances on current credit lines, a new inquiry might be perceived as a greater risk, potentially leading to a slightly larger score reduction. Overall credit health is another determinant; those with excellent credit scores may see a negligible change, while individuals with fair or poor scores could experience a more pronounced, though still temporary, dip. Recent applications for other types of credit, such as new credit cards or personal loans, occurring around the same time as a mortgage application, could compound the collective impact on the credit score.

Credit Score and Mortgage Rate Shopping

Credit scoring models recognize that consumers often compare offers from multiple lenders when seeking a mortgage. To avoid penalizing this financially prudent behavior, these models treat multiple mortgage inquiries within a specific timeframe as a single inquiry. This allows consumers to shop for the best rates without undue concern about numerous score reductions.

The typical timeframe for this grouping, often referred to as a “shopping window,” ranges from 14 to 45 days, depending on the specific credit scoring model used. If an individual applies to several mortgage lenders within this designated period, all those inquiries will generally have the same credit score impact as if only one application had been made. This mechanism encourages consumers to seek competitive mortgage offers, understanding that their score will not be unduly affected by comparing terms.