Inquiries – When Do They Hurt Your Score?
Many people are in a position to buy a home at some point in their lifetimes. However, unlike the select few that can pay cash straight up for a new home, the majority have to apply – and be approved – for a mortgage by a lender. With that being said, most people like to rate shop, or see what type of an interest rate they can get and what type of loan amount they’re eligible for from several different lenders before opting to go with one.
But in order for a lender to give you accurate information, they have to do a credit check. On that note, many people believe that these credit checks will have a negative impact on their credit score. That’s simply just not true. We examine more below:
Hard vs. Soft Inquiries
Soft credit inquiries are when you or a business is simply checking your credit score, not when your information is being reviewed by a potential lender. Soft checks don’t have any impact on your credit score. Hard checks, however, do. Unlike soft checks, hard checks are when a potential lender is reviewing your credit information because you’ve applied for a loan with them. By definition, a lender reviewing your credit information for the purpose of a home loan is considered a hard check.
So then why doesn’t a mortgage inquiry impact your credit score? Because rate shopping, whether it be for a home loan, auto loan or student loan, is the long exception to the hard credit inquiry rule. Simply put, the FICO score considers any type of mortgage inquiry – not matter how many there are – within a 45-day period as a single entry.
The only real way that individuals can get into trouble credit score-wise when it comes to mortgage inquiries is if they do it on more of a long-term process and not within the 45-day window that FICO usually works off of. They may also run into issues if their inquiries are not similar when it comes to the mortgage.
We get how important a good credit score is in securing a low interest rate, potentially saving you thousands of dollars over a 15-year or 30-year home loan period. And that’s why people are hesitant to rate shop when it comes to a mortgage lender. But you shouldn’t fear an impact to your credit score by rate shopping, simply because there won’t be any impact as long as it’s done within a 45-day time period and the mortgage inquiries are similar. It’s only natural to want to get the best rate on your home loan and the system is fairly designed to permit this.