The Myth about Credit Inquiries and Mortgage
One of the biggest concerns when shopping for a mortgage is that multiple credit inquiries by lenders will negatively impact your credit score.
Actually, there’s very little impact when your credit is pulled for a mortgage inquiry. The three credit scoring companies – Experian, Equifax and Transunion – allow you to specifically shop for mortgages and do not penalize you for it. Unlike other credit inquiries, which will affect your credit score negatively for each credit pull, mortgage inquiries are treated as just one inquiry – as long as they occur within 30 days.
Since your mortgage is most likely the most expensive purchase you will make, it is prudent to shop around for rates and overall financing costs. This specific 30-day window allows you to have multiple mortgage lenders pull your credit with the minimal impact of just one inquiry. Why is this important? Credit inquiries can cost you from 2-3 points on your credit score (if you have a high initial credit score) to as much as 10 points (if you are starting from a low credit score).
The credit score used for your mortgage eligibility and interest rate is the middle of the three scores obtained from the three credit-scoring companies. If you are applying with a co-borrower, it is the lower of the two middle scores.
In order for each lender to get an accurate picture of your qualifications and costs, it is imperative that they pull your credit. In addition to your credit score, there are requirements on items on your credit report that may need to be addressed. These include judgments, collections, prior bankruptcy, foreclosures or even credit disputes.
Consider the credit inquiry a rite of passage to getting your mortgage. Shop for the best loan until your heart is content – just keep it within the 30-day window so your credit stays in great shape!