Shop For A Mortgage Without Hurting Your Credit

Part of the homebuying process involves shopping around with multiple lenders for the best mortgage rate. But without a plan, the very act of shopping around can negatively impact your credit. Walk into one of the most important financial decisions in your life with confidence by understanding how to shop for a mortgage without harming your credit.

How can shopping for a mortgage impact your credit?

When exploring mortgage options, your credit score typically only takes a hit when you obtain a mortgage preapproval from a lender. Part of getting preapproved includes a lender checking your credit through a hard inquiry. A soft credit check mortgage preapproval is hard to come by since lenders want a close look at your financial history during this process.

Although it does not replace a preapproval, if you obtain a prequalification — a step down from a preapproval — you shouldn’t see any change to your credit score because prequalifications involve a soft credit inquiry. In other words, you can see if you prequalify without hurting your credit score.

Can you get preapproved for a mortgage without a credit check?

Hard credit checks are a standard part of the mortgage preapproval process. While you can get a prequalification without a hard credit check, you cannot get preapproved without one.

How to shop for a mortgage without hurting your credit

There are several ways to avoid a negative impact on your credit score when shopping for a mortgage:

Shop for your mortgage within a short timeframe

It’s wise to compare offers from multiple mortgage lenders, but be sure to do it within a 45-day time frame. During that period, all credit inquiries by various lenders only show up as one inquiry on your credit report. One inquiry has a lesser impact on your credit than several inquiries.

Get prequalified for a mortgage

Getting prequalified for a mortgage — some lenders call this a rate check — can be a smart strategy if you’re concerned about damaging your credit score as you comparison-shop. This gives you a soft credit check mortgage exploration option.

In other words, you can prequalify without hurting your credit score. This allows you to shop around and compare rates without this risk.

Hold off on applying for new credit

If possible, wait until you officially close on your mortgage before applying for more credit types, such as a new credit card or a personal loan. That’s because multiple inquiries for different types of credit can negatively impact your credit score, hindering your efforts to get a competitive mortgage rate. Even if applying for a credit card only drops your score by a few points, that could be the difference in your interest rate, especially if you’re on the cusp between “good” and “very good” or “fair” and “good” credit.

In addition, adding new debt can impact the loan amount you can qualify for. The more debt you have, the less mortgage you will qualify for.

Check your credit report

If you check your credit report before comparison shopping for a mortgage, you can take proactive steps to improve your credit score if needed. You’ll also be able to spot and fix any errors, putting you in the best position to get the lowest rate without accumulating unnecessary inquiries on your report.

When you have your credit report in hand, look for:

• The correct personal identity information for you (names or contact information you don’t know could indicate identity thieves)
• Correct information on all open and closed accounts, including loans you’ve fully paid off
• Accurate recording of all payments you’ve made (pay special attention to any payments flagged as missed or late)
• Account balances that match your actual balances
• Credit score inquiries to confirm they’re ones you approved

If something doesn’t look right, take steps to dispute and correct it.

You can get a free copy of your credit report from each of the three major credit reporting agencies each week at AnnualCreditReport.com. Don’t worry — checking your credit report won’t affect your score.

Pay down debt

If your credit score could use improvement, one of the best ways to raise it is to pay down your debt, like credit card balances. If doable, pay off a credit card balance in full — bonus points for keeping the balance as low as possible moving forward.

Keep in mind, though: It might make more sense from a mortgage qualification standpoint to pay down or pay off another loan instead of putting all of your excess funds toward eliminating credit card debt, even if the credit card debt has a higher interest rate. That’s because mortgage lenders review your debt-to-income (DTI) ratio through the lens of monthly payments.

For example, if your DTI ratio is a bit high and your student loan payment is higher than your minimum credit card payment, it is better to focus your debt payoff strategy on the loan, which would lower your DTI ratio. In cases like this, it’s helpful to consult an experienced loan officer who can advise you on the best ways to qualify for the lowest rates.

Improving your credit score before getting a mortgage

The most attractive interest rates are reserved for borrowers with solid credit scores. With a credit score of 740 or higher, for example, most lenders will offer you a lower interest rate, reducing your monthly payment.

Once you’ve resolved any errors on your credit report, here are some additional ways of how to improve your credit score:

• Make all payments on time each month. Payment history is a substantial factor in determining credit scores, and it makes sense that mortgage lenders care about being paid in a timely manner. If you have accounts that are past due, bring them current.
• Pay down credit card balances. Paying down credit card balances decreases your credit utilization ratio, which accounts for 30 percent of your FICO credit score.
• Avoid opening or closing accounts. Opening new accounts involves another hard credit check, which dings your credit score. Closing old accounts may negatively impact your credit utilization ratio.
• Become an authorized user on a relative’s credit card. Only consider this option if they have an exceptional payment history and manage the card responsibly.

FAQ about shopping for a mortgage without hurting your credit

• What are the credit score requirements for different types of loans, such as conventional loans, FHA loans, VA loans and jumbo loans?
  

  The minimum credit score required to get a mortgage varies by loan type and lender. Lenders offering conventional loans and VA loans typically require a credit score of at least 620 — although VA loans have no set minimum limit. You can qualify for an FHA loan with a credit score as low as 500 with a larger down payment. Qualifying for a jumbo loan, which is larger than traditional mortgages, requires a higher credit score, usually of at least 700.

• How many mortgage lenders can I approach without impacting my credit score?
  

  You can approach as many lenders as you want without hurting your credit if you only ask questions or request a prequalification. You can also request preapproval from as many lenders as you want and have it count as only a single inquiry on your credit report as long as you make all your requests within 45 days.

• Can I receive mortgage rate quotes without a credit check?
  

  You can get a mortgage loan estimate through prequalification, which does not require a hard credit check and will not hurt your credit.

• How long do mortgage inquiries stay on my credit report?
  

  A hard inquiry may stay on your credit report for as long as two years. However, the inquiry itself typically only impacts your score for about one year.