How To Shop for a Mortgage Without Hurting Your Credit

Buying a home is an intensive process. You have to save up money for a down payment, search for the perfect home, and figure out how to get yourself a mortgage. That’s a lot for anybody, but on top of all this, you also have to worry about how all these decisions will affect your credit score. Shopping and applying for a mortgage can impact your credit—but it doesn’t have to. 

Let’s take a look at the ways shopping for a mortgage will affect your credit score and how to minimize the impact.

How Does Mortgage Shopping Impact Your Credit Score?

When you start shopping for a mortgage, the process itself isn’t difficult. You find a lender—or two or three—and fill out an application. The lender will then verify your eligibility and qualifications. One of these steps involves checking your credit score. 

Your credit score is a three-digit number that tells lenders how likely you are to pay your bills on time. Ranges vary, but a good credit score is considered to be between 670 and 739.

When a lender checks your credit score, that search shows up as a hard inquiry. Hard inquiries can lower your score, especially if you have too many of them. But don’t worry too much—the drop is usually temporary and won’t make a huge difference long-term. 

When shopping for a car loan, mortgage, or similar types of loans, several inquiries in a short period of time will be grouped together and considered a single hard inquiry. In most cases, if the inquiries are made within a 45-day period, this will keep the impact on your credit score to a minimum. More on this later. 

Check Your Credit Score

In order to know how to protect your credit score, you’ll first need to know what it is. This is a good idea for multiple reasons. First, you’ll be able to see if your score is good enough for a mortgage. Lenders aren’t eager to issue loans to those with low credit scores or no credit history.

Regularly checking your credit report is important. Credit bureaus don’t always report accurate information, and if there’s something false on your report, you should dispute it. Incorrect information can damage your credit score, especially if it’s negative information. 

Consider Prequalification

When it comes to searching for a mortgage, you may consider getting prequalified. This is a good option for when you are uncertain whether your credit score is good enough for a mortgage. Prequalification involves a lender completing a basic review of your information and giving you an offer (or not) based on what they see. 

Maintain Your Credit Score

Once you’ve figured out your credit score, you’ll want to maintain it while you shop for your mortgage. This will allow you to secure the best rates and have the best chances of approval. We spoke to John Cabell, the director of banking and payments intelligence at J.D. Power and Associates, for some tips on how to keep your score high. 

Pay Off Debt

Cabell recommended paying off all outstanding debt, if possible, in order to give your credit score a boost. Do this well before applying for your mortgage. Banks use your debt-to-income ratio to determine how much of a loan they’re willing to give you. 

Make On-Time Payments

As we stated earlier, part of your credit score is determined by how timely your payments are. Even a single late payment can have a negative impact on your score. 

Avoid Acquiring New Credit Cards or Loans

According to Cabell, you should avoid acquiring any new debts before applying for a mortgage, which includes applying for new credit cards and loans. When you do so, it can take several weeks for changes to be reflected on your credit report.

Several things happen when you apply for and receive loans or a new card: A new hard inquiry will be reported, your average age of credit will decrease, your credit mix may improve, and your total overall credit utilization may decrease. 

Limit Your Search to Less Than 45 Days

We mentioned above that banks will treat multiple inquiries within a certain time period as a single inquiry. Take advantage of this and shop around for rates from multiple lenders. Just make sure that they all take place within 45 days of each other. 

The Consumer Financial Protection Bureau (CFPB) notes the following: “The impact on your credit is the same no matter how many lenders you consult, as long as the last credit check is within 45 days of the first credit check.” This is because anyone pulling your credit score—now or in the future, will realize that you are just going to buy one home, not as many homes as those inquiries represent. 

According to Cabell, though, there are some—albeit uncommon—circumstances in which extending your loan application beyond the usual 45-day mark might be a good idea.

“For unusual circumstances, a months-long application process could delay your timeframe to make payments and improve your score, but those cases are relatively rare,” he said.

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