Understanding Credit Inquiries During Mortgage Applications
When individuals are in the market for a mortgage, a common concern arises regarding the potential impact of credit checks on their credit score. The process of applying for a home loan often involves multiple lenders reviewing an applicant's credit history, leading to questions about whether these inquiries will lower their score significantly.
Hard vs. Soft Inquiries
It's important to differentiate between two main types of credit inquiries: 'hard' inquiries and 'soft' inquiries. A soft inquiry, such as checking your own credit score or a pre-qualification check by a lender, does not impact your credit score. These inquiries are often used for informational purposes and are not visible to other lenders.
Conversely, a 'hard' inquiry occurs when a lender requests your credit report as part of an application for new credit, like a mortgage, car loan, or credit card. These inquiries can temporarily lower your credit score by a few points. However, the credit scoring models recognize that consumers often shop around for the best rates on major loans.
Mortgage Rate Shopping and Credit Scores
Credit scoring systems, like FICO, are designed to account for rate shopping. If you apply for several mortgages within a specific timeframe – typically 14 to 45 days, depending on the scoring model – these inquiries are often grouped and treated as a single hard inquiry. This means that comparing offers from multiple mortgage lenders within a concentrated period will likely have the same minor impact on your score as a single application, rather than each inquiry lowering your score individually.
This 'deduplication' period allows consumers to shop for the most favorable mortgage terms without being unduly penalized for diligent research. Therefore, while a hard inquiry for a mortgage may cause a slight, temporary dip in your score, the impact is generally minimal, and the benefit of securing a better interest rate often far outweighs this minor reduction.
Source: When mortgage shopping, does checking your credit scores lower them?