Does Looking for a Mortgage Affect Your Credit?

Credit scores mean a lot in the mortgage industry, because a few tenths of a percent can add up to thousands of dollars on these large loans. Unfortunately, the act of looking for a mortgage usually lowers your credit score. However, the credit reporting bureaus give you a break on the damage of a credit inquiry if you "rate-shop."

Identification

Looking for a mortgage hurts your credit once you consent to a credit check. Credit inquiries take between zero and five points off of your credit rating under the FICO system, according to the Fair Isaac Corporation. Although individual inquiries rarely make a difference to a lender, accruing more than six inquiries in a year is a serious negative item, because many inquiries might mean you are desperate for extra credit.

Rate Shopping

You can reduce the effect of mortgage credit applications by rate-shopping. If you submit all of your applications within a 14-day period, the credit bureaus count all of the inquiries as one inquiry. If your lender uses the latest FICO scoring software -- FICO 08 as of 2011 -- the rate-shopping window extends to 45 days, according to FICO.

Personal Credit Checks

Before you even consider getting a mortgage, you should perform a credit check on yourself, also called a "soft credit check." A personal credit check never damages your credit rating, and lenders can never see how many times you look at your own report. You may find mistakes on your credit report that you can dispute, and if the credit bureaus validate your claim and erase the negative entry from your credit report, your credit rating should rise.

Tip

The best way to ensure all of your mortgage applications meet the rate-shopping window deadline is to submit them all at the same time. Also, ask each lender which FICO formula it uses. If the lender uses an old version of the FICO system, you only have 14 days to submit other applications. Therefore, you should apply for other credit accounts, such as credit cards, well before or several months after you apply for a mortgage.