When you’re in the market for a mortgage, it’s best to shop around to find the best rates or get better lender fees. But because this process typically involves multiple lenders checking your credit score, many buyers are concerned these credit inquiries, often referred to as “credit pulls,” will hurt their score, leaving them less inclined to shop around. But the good news is as long as you follow a few guidelines, you can shop around for mortgages without doing too much damage to your credit.
First, there are two types of credit pulls, a “soft pull” and a “hard pull,” and there’s a stark difference between the two.
A soft pull often happens without you knowing it and doesn’t affect your credit score. Sometimes these types of inquiries are done without your permission, such as in the event you receive an unsolicited pre-approved credit card offer in the mail or when a prospective employer pulls your credit as part of a background check on you. Other times a soft pull happens when you check your credit score. And if either of these two things has happened, they are categorized as soft pulls and will not chip away at your score.
A “hard pull,” on the other hand, can affect your score. When you’re shopping around for a mortgage, it’s not uncommon for you to speak with multiple lenders. And that means numerous requests for your credit report. This can be concerning because your score can be impacted with every “hard pull” unless each pull happens within a specific window. Credit bureaus know that potential borrowers will “rate shop,” so you generally have between a 14- to 45-day window, depending on which credit bureau, where all pulls are consolidated and considered just one.
To apply for a mortgage, you can almost guarantee the lender will pull your credit report hard. This inquiry will stay on your credit report for two years but will only impact your score for one year. It can shave a few points off your score per inquiry, so if you’re shopping around, it’s essential to shop around in a set amount of time to avoid being penalized for each inquiry.
Even though this hard credit pulls will stay on your credit report for two years, lenders will be able to see from your report that you’re shopping around for a mortgage, so even if your score is a few points lower than you’d like, thanks to a hard inquiry, lenders may consider your rate shopping when assessing your history.
Since there is a bit of a grace period to shop around for rates, take advantage. If you shop and compare lenders’ rates, you can save thousands of dollars. Because buying a home is one of the most expensive endeavors you’ll have, saving any amount of money can be beneficial.
Not only will shopping around and comparing rates help you get the best deal but reading lender reviews and knowing the ins and outs of the quotes you’re receiving can help you avoid paying extra fees. You should discuss your options with a lender and compare their rates with quotes from other lenders.
It’s also important to check your credit score to know where you stand before requesting these hard pulls. If you know your credit isn’t entirely where you want it to be, you’ll have time to correct it before a lender pulls it to evaluate you. And since soft pulls won’t negatively impact your score, you can check your score with peace of mind.