Credit Score Tips For Mortgage Shoppers
"Don't Check My Credit!"
It's common for mortgage rate shoppers worry about "multiple hits" to credit while shopping for a mortgage. It's a misplaced worry, however.
Since the mid-1990s, credit scoring algorithms have been reworked to encourage you to shop for low mortgage rates. Low rates equals lower payments and that's good for everyone.
You Have The Right To "Shop Around" For A Mortgage
A "credit inquiry" occur when a mortgage lender, credit card company or other financial service provider pulls your credit scores prior to approving a loan or issuing new credit. Based on credit scoring models, most types of credit inquiries will lower your credit score.
Mortgage-related credit inquiries, however, are treated differently.
According to Fair Isaac Corporation (FICO), which developed the credit-scoring model most frequently used by mortgage lenders, mortgage-related credit inquiries don't have the same negative impact on a credit score as, say, a credit card applicant.
This is because mortgages are "good credit" and the bureaus -- aside from the aforementioned revenue piece -- want to give every mortgage rate shopper the right to "shop around".
Therefore, the following exceptions apply to mortgage credit scoring :
- Mortgage credit checks don't impact FICO until 30 days have passed.
- Multiple mortgage credit checks made within the past 45 days are lumped into a single credit check only.
In this way, mortgage rate shoppers can have their credit checked by as many lenders as possible without fear of harming their FICO. It's been FICO policy for nearly 20 years, yet few homeowners seem to know it.
Credit Tips For Mortgage Applications
The credit bureaus protect rate shoppers; you can shop lenders ad nauseum in hopes of finding the absolute lowest mortgage rate -- just do it all within the allotted time frame. However, where the bureaus won't protect you is with respect to other credit types.
When you're shopping for a mortgage, don't apply for credit cards and don't run up big balances. Those event types will change your credit score and may change your ability to get a mortgage approval at all.
Click here to read more about credit scoring and mortgages.