How To Seek Out A Mortgage Without Damaging Your Personal Credit Score

Purchasing a property is a time-consuming process. You must save money for a down payment, find the ideal property, and figure out how to secure a mortgage. That’s a lot for anyone, but you also have to consider how all of these actions may affect your credit score. Shopping for a home and qualifying for a mortgage might have an influence on your credit, but it doesn’t have to.

Let’s look at how shopping for a mortgage affects your credit score and how to mitigate the effects.

credit score

What Effect Does Mortgage Shopping Have on Your Credit Score?

When you start looking for a mortgage, the procedure is simple. You locate a lender (or two or three) and submit an application. Your eligibility and credentials will subsequently be verified by the lender. Checking your credit score is one of these processes.

Your credit score is a three-digit number that lenders use to determine your likelihood of paying your payments on time. The ranges vary, but a decent credit score is between 670 and 739. 

Equifax, Transunion, and Experian are the three major credit bureaus. Each of them will have its own version of your credit score, and modest variations across the three agencies are common.

When a lender investigates your credit, the search is recorded as a hard inquiry. Hard enquiries might reduce your score, particularly if you have a high number of them. But don’t be too concerned—the decline is generally transient and won’t make a significant impact in the long run.

When looking for a vehicle loan, mortgage, or other similar sorts of loans, many enquiries made in a short period of time will be bundled together and treated as a single hard enquiry. In most circumstances, if the queries are conducted within 45 days of one other, the impact on your credit score would be minimal.

Examine Your Credit Score

To understand how to safeguard your credit score, you must first understand what it is. This is an excellent idea for a variety of reasons. First, you’ll be able to determine whether your credit score is adequate for a mortgage. Lenders are hesitant to make loans to those who have poor credit or no credit history.

A variety of websites provide free credit score checks. You may also get a free credit report up to six times each year until 2026. 

It is critical to check your credit report on a regular basis. Credit bureaus do not always provide accurate information, and if something is incorrect on your report, you should dispute it. Incorrect information can harm your credit score, especially if it is bad.

Consider Prequalification

When looking for a mortgage, you should consider being prequalified. This is an excellent alternative if you are unsure whether your credit score is adequate for a mortgage. A lender will complete a basic assessment of your information and make you an offer (or not) depending on what they observe.

It is possible to go through the prequalification procedure without having a hard inquiry impact your credit score, but you must confirm this with your lender on an individual basis. Simply ask if they would do a gentle inquiry, which will not influence your score. However, keep in mind that if you proceed beyond prequalification, you will still need to complete a hard inquiry.

Keep Your Credit Score

Once you’ve determined your credit score, you’ll want to keep it up while looking for a mortgage. This will help you to get the greatest prices and the best approval chances. We chatted with John Cabell, director of banking and payments intelligence at J.D. Power & Associates, for advice on how to maintain a high score.

Pay Off Your Debts

Cabell advised paying off any existing debt as soon as possible to improve your credit score. Do this thoroughly before applying for a mortgage. Banks evaluate your debt-to-income ratio to decide how much money you may borrow.

Make Timely Payments

As previously indicated, on-time payments account for a portion of your credit score. Even a single late payment might lower your credit score.

Avoid Taking Out New Credit Cards Or Loans

Cabell advises that you avoid incurring any new obligations before applying for a mortgage, including new credit cards and loans. When you do this, it may take several weeks for the modifications to appear on your credit report.

When you apply for and obtain loans or a new credit card, several things happen: A new hard inquiry will be recorded, your average age of credit will be lower, your credit mix may improve, and your total overall credit usage will be lower.

A better credit mix and lower credit usage are both beneficial in the long term, but your bank will need to verify any additional accounts you’ve created, which will take time.

Limit your search to 45 days or less.

As previously stated, banks will regard several queries within a specific time period as a single enquiry. Take advantage of this by comparing rates from several lenders. Just make sure they’re all within 45 days of each other.

According to the Consumer Financial Protection Bureau (CFPB), “the impact on your credit is the same regardless of how many lenders you consult, as long as the final credit check is within 45 days after the initial credit check.” This is because anybody pulling your credit score now or in the future will know that you are only intending to buy one property, not the number of residences represented by those queries.

Cabell, on the other hand, believes that there are some—albeit rare—circumstances in which extending your loan application beyond the standard 45-day period may be a smart idea.

“In exceptional instances, a months-long application procedure might postpone your timing to make payments and increase your score,” he stated.

According to the CFPB, if you look around for a cheaper mortgage rate after the 45-day window has passed, the additional impact on your credit score may be worth the money you save in interest in some situations.

Commonly Asked Questions (FAQs)

What are the current mortgage interest rates?

Current mortgage rates vary depending on a variety of factors, including your area and the sort of loan you’re seeking. For current mortgage rates, consult reputable sources such as the Consumer Financial Protection Bureau.

What is the maximum mortgage amount I can afford?

The debt-to-income ratio is used by banks to assess how much of a mortgage they are prepared to provide you. You may calculate this using a mortgage calculator.

What credit score is required to purchase a home?

Different sorts of loans require different credit scores. For example, FHA loans are ready to tolerate lower credit ratings.

How can I raise my credit score?

You may enhance your credit score in a variety of ways, including decreasing your credit use and making on-time payments.

As you can see there are a number of ways in which you can begin hunting down the right mortgage without damaging your personal credit score. Simply follow these tips and you will be fine!