A credit score is a simple three-digit number that hides a complex formula. Many things can affect your credit score, including debt, late payments and new credit applications. Applying for a mortgage will affect your credit score, but only by a few points. Multiple credit applications can have a more serious effect. However, this should not stop you from shopping around for the best rate.
Credit Scores
A credit score is a summary of all of your borrowing and repayment history from the last seven years. Any time you apply for credit, whether it's a personal loan, a credit card, or a mortgage, the lender will run a credit check to see how creditworthy you are. Your credit score helps lenders decide whether to lend you money and what interest rate to charge. The higher your score, the easier and cheaper it will be to borrow money.
Credit Checks
Many things affect your credit score, including credit checks. If you apply for lots of credit within a short period, it can make you look desperate for money. This makes lenders suspicious. Desperate people do not make good borrowers. This is why it's usually inadvisable to make several credit applications within 60 days. It's better to spread them out.
Mortgage Applications
Applying for a mortgage is not the same as applying for a credit card. Lenders understand that borrowers want to shop around and compare providers before committing to a large debt. If you want to make several mortgage inquiries, try to do so within 45 days. Then all the inquiries will be bundled into one on your credit report. Additionally, when you do apply for a mortgage, all the inquiries made in the previous 30 days will count as one.
What Affects Your Credit Score
The effect of credit checks on your credit score is minor when compared to other factors. A single missed payment can cost you more points than several credit applications. If you're more than 90 days behind with repayments, you can lose as many as 100 points. Similarly, maxing out your credit lines will hurt your credit score much more than a mortgage application. It will make you look overstretched and like a bad lending risk.
Savings
If your financial situation makes it difficult for you to do make all your mortgage inquiries within the 45-day window, it may still be worth it to shop around. Interest rates and borrowing conditions vary dramatically from one lender to another. Unless your credit score is right on the cusp between prime and subprime, it's worth losing a few points to get a better deal. It can save you thousands of dollars in the long run.
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