## Does Shopping Around For a Mortgage Hurt Your Credit?
**Introduction**
Obtaining a mortgage is a significant financial commitment, and it’s crucial to approach the process thoughtfully. One common question among potential borrowers is whether comparing multiple mortgage lenders and loan options can negatively impact their credit score. This article aims to shed light on this concern and explore the potential consequences of shopping around for a mortgage.
**Hard Credit Checks vs. Soft Credit Checks**
When you apply for a mortgage, the lender typically obtains a copy of your credit report from a credit bureau. There are two types of credit checks that can be performed:
* **Hard credit check:** This is the traditional type of credit check that involves a thorough review of your credit history and results in a temporary decrease in your credit score. Lenders typically perform hard credit checks when evaluating a loan application.
* **Soft credit check:** This is a less detailed review of your credit report that does not impact your credit score. Soft credit checks are often used for non-binding pre-approvals or credit monitoring purposes.
**Impact of Multiple Hard Credit Checks**
Multiple hard credit checks within a short period can have a negative impact on your credit score. When a lender pulls your credit report for a mortgage application, it adds an inquiry to your record. A series of inquiries within a close timeframe can be interpreted by creditors as a sign of high-risk borrowing behavior and can result in a lower credit score.
**Grace Period for Mortgage Inquiries**
To mitigate the potential impact of multiple hard credit checks, a special rule applies to mortgage inquiries. Lenders commonly use a grace period of 30 to 45 days, known as the “rate shopping window.” Inquiries made within this window for the same type of loan product (e.g., conventional mortgages) are typically counted as a single inquiry for credit scoring purposes. This grace period allows you to compare several mortgage options without significantly damaging your credit score.
**Frequency Thresholds for Mortgage Shopping**
To optimize your mortgage shopping process while minimizing the impact on your credit, consider following these frequency thresholds:
* **Pre-approvals:** Obtain pre-approvals from multiple lenders to get an idea of your loan eligibility and interest rate range. Pre-approvals typically involve soft credit checks and do not affect your credit score.
* **Formal applications:** Submit formal loan applications only when you have identified a few promising options. Limit the number of formal applications to 2-3 within a 30-45 day period to take advantage of the grace period for mortgage inquiries.
**Exceptions to Grace Period**
The grace period for mortgage inquiries does not apply in all circumstances. For instance, if you apply for a mortgage outside of the traditional 30-45 day window, each hard credit check will be counted separately and could lower your credit score. Additionally, if you apply for other types of credit (e.g., credit cards, auto loans) during the grace period, those inquiries will not be included in the mortgage inquiry exemption.
**Best Practices for Mortgage Shopping**
To minimize the potential impact on your credit while shopping for a mortgage, consider these best practices:
* **Obtain pre-approvals first:** Get pre-approved for a mortgage before submitting formal applications. This will allow you to compare loan options without incurring hard credit checks.
* **Limit formal applications:** Submit formal loan applications only when necessary and within the rate shopping window.
* **Space out applications:** If possible, space out formal loan applications by several weeks to minimize the number of inquiries within a short timeframe.
* **Monitor your credit:** Use a free credit monitoring service to track your credit score and ensure that any changes are not due to excessive hard credit checks.
**Conclusion**
Shopping around for a mortgage can be beneficial for securing the best loan terms, but it’s important to approach the process strategically to avoid harming your credit score. By understanding the difference between hard and soft credit checks, utilizing the rate shopping window, and following best practices, you can effectively compare mortgage options without significantly impacting your creditworthiness.