When a person applies for a home loan, the lender will want examine the person's previous credit history. The person's credit rating -- a measurement of the likelihood that he will be able to pay back the loan -- will do much to determine the interest rate he can receive on the loan. However, a credit check made by a lender will generally slightly lower the person's credit score.
Features
According to the Fair Isaac Corp., the inventors of the modern credit score, when an individual applies for a home loan, he will generally authorize the lender to make an inquiry into his credit report. All inquiries made by lenders related to a borrower seeking credit will cause the borrower's score to drop slightly. The exact amount will depend on the borrower's credit history and it could drop by as many as five points per inquiry.
Considerations
Multiple related inquiries, such as multiple inquiries by different home loan lenders, will count as only a single inquiry if recorded within a short period. Depending on the credit scoring model, this "shopping" period can range from 14 to 45 days. However, inquiries that indicate a person is considering taking out multiple lines of credit in a short period will harm a person's score more.
Explanation
Although it may seem strange that merely having a lender check a score can lower a borrower's credit rating, the Fair Isaac Corp. explains that this is because these inquiries indicate that person is seeking to take out new lines of credit. When a person takes on more credit, this generally places him at a higher risk of default, causing his credit score to drop.
Misconceptions
Only inquiries that result from a person seeking to take out a loan or open a new line of credit will negatively affect credit score. Other kinds of inquiries -- such as inquiries made by an employer or a landlord -- will not affect the person's credit score. Similarly, if a person checks his own credit score, this inquiry will not cause the score to go down.
Solution
To protect his credit score, an individual applying for a home loan should apply to all the mortgage companies within the same week. This way, all the separate inquiries will be counted as only a single inquiry, limiting harm to the person's credit score.
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