Let us suppose that you are interested in getting a mortgage loan from us, so you call us to ask about our mortgage rates and loan terms. To make sure that we give you the correct answer, we need to know whether your potential application will be ranked "good," "fair," or "poor." One of the elements in your evaluation is pulling your credit report.
Many of our customers worry that pulling their credit reports will hurt their credit scores. So here we explain what happens to your credit score and suggest to you some tips you might want to follow when shopping for a mortgage loan. You might also want to read what the Consumer Financial Protection Bureau (CFPB), a US government agency, has to say about this subject on their website: https://www.consumerfinance.gov/ask-cfpb/what-exactly-happens-when-a-mortgage-lender-checks-my-credit-en-2005/ .
Types of inquiries reported to the Credit Bureau.
To start with the discussion, you should know that there exist different types of inquiries when it comes to your credit report:
- Someone entitled to do so can perform a "soft inquiry"; or,
- Someone authorized to report can register a "hard inquiry"; or independently,
- You can check your own credit report.
Soft inquiries. When someone reports a check on your credit score as an "Inquiry," this type of report lets other lenders know that you are shopping around for a loan. At AMIL (as is the case in most other hard money lenders), we call these types of checks "soft inquiries," and they are handled differently from a "hard inquiry."
Soft inquiries let other creditors know that you are thinking of taking on new debt. The CFPB explains very clearly that "an inquiry typically has a small, but negative, impact on your credit score." Because these checks are a necessary part of applying for a mortgage, you can't avoid them altogether, but you can manage them wisely. As we explain below, when shopping for a mortgage, you have a 45-day window in which multiple soft inquiries will not lower your credit score, or if they do lower it a bit, it will just be temporary.
Hard inquiries. On the other hand, hard inquiries are registered when you apply for a loan other than a mortgage, such as a new credit card or a car loan.
Credit Report personal check. You can check your own credit with no impact on your score. When you check your own credit (report or score), this inquiry is handled differently by the credit reporting agencies and does not affect your credit score.
What are some tips regarding credit inquiries when applying for a mortgage?
Tip 1. Check your credit report and correct errors, if any. If you are applying for a mortgage and haven't already checked your credit report for errors, do so now. You can get a free copy of your credit report at www.annualcreditreport.com. If you find any errors, get them corrected so that your mortgage lender evaluates a more accurate credit report.
Tip 2. Get a copy of your credit report and share it with prospective lenders. Share a recent credit report with a prospective mortgage lender. You can avoid having multiple lenders pull your credit report.
Tip 3. When you shop around for a mortgage, do so in a short period of time. As stated by the CFPB on its website, shopping for a mortgage will not hurt your credit if it is done within a 45-day window, as multiple credit checks from mortgage lenders are recorded on your credit report as a single inquiry. Creditors realize that you will only buy one home (at least for a while). You can shop around and get multiple preapprovals and official Loan Estimates. The impact on your credit is the same no matter how many lenders you consult, as long as the last credit check is within 45 days of the first credit check.
Now, if a lender needs to check your credit after the 45-day window is over, shopping around is usually still worth it. The impact of an additional inquiry is small while shopping around for the best deal can save you a lot of money in the long run.
Tip 4. Avoid applying for other types of credit right before getting a mortgage or during the mortgage process. The CFPB suggests that "you have to be smart about inquiries when you shop for a mortgage." Applying for a credit card, car loan, or another type of loan also results in an inquiry that can lower your score, so try to avoid applying for these other types of credit right before getting a mortgage or during the mortgage process.
Consult with AMI Lenders
If you have decided to purchase a home through a mortgage and are worried about multiple credit checks hurting your credit score, don't worry too much about it, as you can go about the process of shopping for a mortgage smartly. When shopping around for a mortgage, choose to consult with AMI Lenders as we are one of Houston's fastest closers. We fund our own loans and can move as fast as the law allows. Borrowers in Houston will also have difficulty finding lower rates for hard money or private loans than those we offer. We want our customers to succeed and take advantage of the financial opportunities offered by homeownership. Visit our website today and fill out an application for a private loan.
