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Don’t Fear Multiple Credit Inquiries When Mortgage Rate Shopping

Craig Berry
The Mortgage Reports contributor

Do “Credit Checks” Keep You From Refinancing?

Even in a still-hot seller’s real estate market, refinance mortgage applications account for more than 60% of all mortgage applications, according to the Mortgage Banker’s Association.

Low interest rates continue to defy the odds, and rising home values have ignited a flurry of refinances.

Some mortgage rate shoppers, however, worry about too many “credit pulls” which lower their credit scores.  They shy away from refinancing.

After all, a lower mortgage payment won’t do much good if borrowing costs rise for other items.

Fortunately, there are laws in place to protect the consumer who wants to shop around for the best mortgage rate.

Verify your new rate (Sep 21st, 2020)

Credit Inquiries Explained

A credit inquiry occurs when a lender or other entity checks your credit.

Too many inquiries could have a significant impact on your credit score. It tells the lender that you are aggressively seeking credit.

That could mean you are in financial trouble, or that you are about to get in “over your head” in debt.

According to MyFico, consumers who have six or more inquiries are eight times more likely to declare bankruptcy than people with no inquiries at all.

Seeking too much credit in a short period, then, drags down your credit score. A lower credit score typically means a higher interest rate, and a harder time getting a mortgage.

For most people, though, a credit inquiry affects their credit scores by less than 5 points.

The negative impact will vary according the type of creditor behind the inquiry, and the strength of their current credit profile.

Verify your new rate (Sep 21st, 2020)

Two Types Of Credit Inquiries: Hard And Soft

There are two types of inquiries that can occur on your credit report – hard inquires and soft inquiries.

Both types of inquires allow third parties to examine your credit, but only hard inquiries will pull your scores down.

Hard inquiries occur when a financial institution checks your credit report to make a lending decision. Hard inquiries are common when you apply for a mortgage, a car loan, or a credit card.

Soft inquiries occur when a person or entity checks your credit as part of a background check. Unlike hard inquiries, soft inquires will not negatively affect your credit scores.

Will Rate Shopping Hurt My Credit?

Each time you apply for new credit you’re going to be hit with a hard inquiry. As noted, hard inquires will pull your score down by a few points.

However, FICO models allow consumers to shop for the same type of credit within a certain period of time.

The credit bureaus identify that you’re comparison shopping by recognizing the types of credit for which you’re applying.

According to the Consumer Federal Protection Bureau (CFPB), the impact on your credit is the same regardless of the number of inquiries, as long as the inquiries are made by mortgage brokers or lenders within a 45-day window.

However, it’s important to note that some companies are using older FICO models. Some older FICO models allow for just 14 days for multiple inquires to have the impact of just one.

For this reason, a good rule of thumb is to try to limit your credit pulls for rate shopping to two weeks.

Pull Your Own Credit Report

Consumers today have relatively easy access to their credit reports.

All three bureaus allow for one free report per year through a program called Annual Credit Report. These reports show your account history, but not your score.

Various websites allow you to see your credit scores for a fee. Just keep in mind that these services often show you a higher credit score than your lender will pull.

The only way to get a mortgage credit score is through a lender.

Before having several lenders run your credit, though, it’s a good idea to do some research on your own.

By doing a little due diligence, you’ll not only have an idea of what’s on your credit, but you may also uncover possible inaccuracies that you can clear up. Doing so can ensure you’re getting the possible mortgage rates and terms.

What Are Today’s Mortgage Rates?

Whether you’re buying a new home or refinancing an existing mortgage, it pays to shop around. Fortunately, the credit bureaus won’t “ding” you for having multiple inquiries due to rate shopping.

Get today’s live refinance rates now. Your social security number isn’t required to get started, and all quotes come with access to your live mortgage credit scores.

Verify your new rate (Sep 21st, 2020)