Does Applying For a Mortgage Affect Your Credit Score?

How Applying for a Mortgage Can Affect Your Credit Score

Applying for a mortgage triggers a hard credit inquiry, which can cause a temporary dip in your credit score. Understanding this process helps you manage your financial health during your homebuying journey.

1. The Hard Inquiry: When you formally apply for a mortgage, the lender pulls your full credit report from one or more credit bureaus. This action is recorded as a "hard inquiry" on your report.

2. Initial Score Impact: A single hard inquiry typically causes a minor, temporary drop in your credit score, usually by five points or less. This reflects the new risk you are seeking to take on.

3. Rate Shopping Window: Credit scoring models recognize that consumers shop for the best rates. Multiple mortgage inquiries within a short period (typically 14 to 45 days) are usually treated as a single event, minimizing the impact.

4. Long-Term Effects: Once you secure the loan and begin making timely payments, the new mortgage can positively affect your score. It diversifies your credit mix and builds a strong payment history over time.

How Much Will Applying for a Mortgage Affect Your Credit Score?

The exact impact of a mortgage application on your credit score can vary based on several factors. Here are a few key things to consider:

• Hard Inquiries. Each mortgage application typically results in a hard inquiry on your credit report. This can cause a small, temporary dip in your credit score, usually by just a few points.
• Rate Shopping Window. Scoring models treat multiple mortgage inquiries within a short time frame as a single event. This allows you to shop for the best rates without significantly harming your credit score.

How You Can Avoid Applying for a Mortgage Affecting Your Credit Score

Shop Within a Short Window

Credit scoring models often treat multiple mortgage inquiries within a 14 to 45-day period as a single event. This allows you to shop for the best rates from various lenders without each application individually damaging your credit score, letting you compare offers wisely.

Opt for Pre-Qualification First

A pre-qualification provides an estimate of your borrowing power based on self-reported information. This step typically involves a soft credit check, which does not affect your score, unlike a pre-approval that usually requires a hard inquiry from the lender to verify your financial standing.

Choose the Right Card to Applying For A Mortgage

Improving your credit score is a crucial step toward better financial health, and fortunately, it's an achievable goal for everyone. By following a few proven methods, you can see meaningful changes and unlock better financial opportunities.

• Monitor your credit reports regularly. Obtain free reports from all three major bureaus to identify and dispute inaccuracies, detect potential identity theft, and track your progress.
• Establish automatic bill payments. Your payment history is the most significant factor influencing your score, so setting up automatic payments helps ensure you never miss a due date.
• Reduce your credit utilization ratio. Aim to keep your balance below 30% of your total available credit, as a lower ratio is viewed favorably by lenders.
• Become an authorized user. Being added to a credit card account with a long, positive history can help improve your own score as that history may be reflected on your report.
• Diversify your credit mix. Lenders like to see that you can responsibly handle different types of credit, such as installment loans and revolving credit cards.

The Bottom Line

A mortgage application triggers a hard inquiry, which can temporarily lower your credit score. To minimize the impact, submit all applications within a short period, as they're often treated as one.

Frequently Asked Questions

Will multiple mortgage applications hurt my credit score?

Not necessarily. Credit scoring models typically treat multiple mortgage inquiries within a short period, usually 14-45 days, as a single event to encourage rate shopping.

How long does a mortgage inquiry stay on my credit report?

A hard inquiry from a mortgage application remains on your credit report for two years, but it generally only affects your FICO score for one year.

Can I check my own credit without it being affected?

Yes, checking your own credit is a soft inquiry and does not impact your score. It's wise to review your report for accuracy before applying.