Shop For Low Mortgage Rates Without Lowering Your Credit Score

Keep Your Credit Score High When You Need It The Most

Shop For Low Mortgage Rates Without Lowering Your Credit Score
January 9, 2020

You are finally in a sufficient financial position to buy a home, and you want to make sure that you get the best deal possible. The only way to do that is to shop around with different lenders to find a lender that provides the best overall package for your needs, starting with a low mortgage rate. However, you must be careful about how you shop to keep your credit score as high as possible.

Mortgage applications require a "hard pull" on your credit, meaning that the lender will perform a more thorough credit check as compared to the soft pull of a prequalification. Hard pulls can affect your credit score, and multiple hard pulls can significantly drop your score because they suggest to a creditor that you are looking to greatly expand your credit — and therefore, expand risk.

Fortunately, if you are rate shopping for a mortgage, there is an exception to that rule. According to FICO, multiple mortgage inquiries are typically considered as one hard credit pull as long as they take place within a short period. Lenders naturally (and rightly) assume that the multiple pulls are related to a single purchase.

The rate-shopping period varies depending on the version of the FICO scoring formula that a lender uses. Typical rate-shopping periods are thirty days. Older versions of FICO have fourteen-day shopping periods, while newer versions provide 45-day shopping periods.

While multiple hard pulls for mortgage applications in a short time will not harm your credit score, multiple hard pulls for other kinds of credit will if they are not obviously directed toward a single purchase. You could legitimately be applying for five different credit cards, but you probably aren't going to be buying five houses or five cars.

By the same logic, opening other lines of credit while rate shopping for a mortgage is also likely to drop your credit score significantly. Keep your credit focus on the mortgage application and resist the temptation to expand your credit capability beyond a safe point.

For any given amount of credit pulls, having a shorter history or fewer credit accounts will cause the pulls to have a greater effect on your credit score. In that case, it becomes even more important to keep your rate shopping within a compressed timeframe.

What happens if you decide not to buy? That round of shopping still counts as one credit pull, and if there is a significant gap between this round and the next rate-shopping round, the effect will be minimal — a 5-point drop is a common estimate. However, if you drag the rate shopping out to where it is a continuous process, you run the risk of the scoring system assuming multiple credit pulls.

Be sure to optimize your mortgage rate shopping through planning. By researching lenders before you start the application process, you should be able to narrow your list down to a manageable number of choices that can be accommodated as quickly as possible. Keeping your mortgage inquiries within a fourteen-day window ensures that you will only be charged with one credit pull under any scoring system. Verify that you should not need to make any major purchases or open any other credit accounts during the evaluation period.

Plan wisely, and you can receive the best mortgage deal possible, while saving money for other upcoming expenses — for example, new furniture for your new home.

You can check your credit score and read your credit report for free within minutes using Credit Manager by MoneyTips.

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Kamie | 10.18.16 @ 15:04
I never knew there were little tricks in having your credit pulled where it would not take a full 10 points away. That is a great thing for me as my credit score is not the best anyways.
irene | 10.18.16 @ 15:12
Great info, I was never really sure if too many lenders checking into your credit at once would lower a credit score or not
Sara | 10.18.16 @ 15:33
I did not know that there were ways to not loose points when credit history was pulled. I was always told to not pull it often. Glad to see there are other options.
Chrisitna | 10.18.16 @ 20:10
Having different mortgage brokers pull credit is what hurt me in the past when shopping for a home loan. I will definitely be saving this for the next go round!
Patricia | 10.18.16 @ 21:10
This is all information we were lucky enough to have been told my our real estate agent. She gave us a packet that had a lot of these points highlighted, but this is definitely in more detail, and makes more sense to me now. We were also told not to open any other line of credit during this time, don't shop for a car, don't open a store account...just focus on this one main purchase. Will pass this along to her, so she can add this link to her packet she gives her clients.
Rindy | 10.19.16 @ 14:11
I had no idea there were so many sides to a credit pull. This is very valuable information and I wish I had of know it all when we bought our house.
$commenter.renderDisplayableName() | 11.25.20 @ 05:52