Shopping for the right mortgage is an important part of home buying. A lender will inform you of the amount of loan that you can afford, and of the interest rate and terms that you will have. Not all loans are the same, so it's important to inquire with several mortgage companies before you find the right loan product for you. When you approach the lenders, they will pull your credit history and score to determine the financial risk that you pose. In doing so, it may or may not lower your credit score, depending on the timing of the requests.
Credit Score Calculations
Your credit score is based on a number of different factors, such as your history of bill payments, the amount of credit that you carry, the length of time that you have had your accounts, the type of credit you use, and recent credit granted. Part of your score, under the criteria for recent credit, is how often your credit report is requested by companies. That affects your score because you are seeking to increase the amount of money that you owe, which makes you a higher risk for lenders.
Hard Pull
When you apply for for a mortgage, it is implied that you are asking a lender to pull your credit, and you also give permission on the loan application for the lender to do so. This type of request initiated by you is known as a hard pull, and your credit score normally drops a few points, depending on the credit bureau, each time you have a hard pull on your record. Credit bureaus realize that it's wise to shop around for the best loan, though, so there is an exception to the impact on your score when such requests are made within a short period of time. All of the hard pulls made in about a two-week period of time are counted as only one inquiry, which has a minor impact on your score.
Consumer Pull
Pulling your own credit report does not negatively impact your score. You have a right to a free annual credit history report from each of the three major credit bureaus: Experian, Equifax and TransUnion. Your credit score is not included in these reports, but you usually have an opportunity to purchase your score when you are requesting your report. When you start shopping around for a new mortgage, but are not sure how much you will need or the type of loan you want, ask lenders if they can use your copy of your credit report to give you loan information, such as interest rate and terms. Later, when you choose the lender you want to use, that lender can formally pull your credit report and score at that time.
Soft Pull
Receiving offers for new credit in the mail is usually a result of a lender pulling your credit score without your permission. Also, your existing creditors regularly check your history to ensure that you are being financially responsible and will continue to pay your bills on time. These third-party credit requests are known as soft pulls and do not impact your credit because they were not initiated by you.
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