A credit score is one of the most important factors in financial health. Lenders take it as a factor in determining the creditworthiness of a credit applicant. Credit scores fluctuate regularly as debt is applied for, advanced, or finalized.
If you’re looking for a mortgage loan to pay off your home, it’s possible it could affect your points. If you want to know how to shop for a mortgage without hurting your credit, you will need to take steps to prevent your credit score from being affected in the shopping process.
Does it hurt your credit to shop around for a mortgage?
Out of ignorance, some people dismiss that “shopping around” can hurt your credit points. The answer to this question is “yes.” Just one conversation with a lender can cause your points to fluctuate. The process works like this:
An inquiry has a small but negative impact on your points. When you talk to a lender, other creditors are informed of the possibility of applying for a mortgage. Even if you wanted to, you can’t avoid these “inquiries” because they are part of the process of applying for credit. While you can’t avoid them, you can be smarter about being in front of a lender.
The golden rule in this context is to only discuss and apply for credit when necessary. Receiving a credit card or using it for recognition due to this conversation reduces your points, so we recommend avoiding these inquiries before processing a mortgage.
How many points does a mortgage inquiry affect credit score?
A credit inquiry is a request that lenders send to agencies such as Experian, Equifax, or TransUnion to verify an applicant’s number of points. Not all questions affect issues, depending on whether it is a hard or soft inquiry.
When a hard inquiry is made on the applicant’s credit, it will remove up to ten points. This number can be less than five points. It all depends on how strong your credit report is, your payment history, and the usefulness of the loans.
It is important to add that this will reflect this inquiry on your report for two years but does not affect your score after one year. Your points may increase if you pay your bills and are financially responsible.
How to apply for a mortgage without damaging your credit score?
Now that you know how and when it affects the credit record to apply for a mortgage, you need to take certain actions to avoid dropping your points. Follow these tips to safeguard your score:
Step One: Shop around early
You should shop around and get pre-approved for a mortgage when you are ready to do so. Try to do this entire process within 45 days. That’s because your inquiries to different lenders are reflected as one on your credit report. Having your score lowered by one rather than multiple inquiries is better.
Step Two: Get Prequalified
Getting prequalified for a mortgage is a smart plan if you don’t want to hurt your credit points while shopping around. To get prequalified, lenders review your report but set it up as a “soft inquiry” so it doesn’t lower your points.
As mentioned earlier, a “hard inquiry” can subtract five to ten points, while “soft inquiries” do not subtract scores. The first occurs if you receive a pre-approval or formally apply for funding.
Consider that if you receive a pre-qualification, you can help minimize the damage to your points. It is not a substitute for pre-approval when the time comes. In the marketplace, pre-approval is necessary to demonstrate to sellers that they can receive the credit covering the offer.
Step Three: Don’t apply for a new loan right away
If you are in the process of applying for a mortgage loan but also need to apply for a credit card or personal loan, be aware that multiple inquiries can seriously affect your points. This is precisely what you wish to avoid within step one.
If you apply for different forms of financing, it hinders your efforts to receive a competitive mortgage. The recommendation is to close your mortgage before applying for another loan.
Step Four: Review your credit report
Before you apply for a loan, you need to know how your credit report is doing. Reviewing your credit record before you start shopping around can make better decisions to avoid mistakes and point deductions. From this context, you will be better positioned to receive a desirable rate without accumulating several inquiries.
Lenders analyze the applicant’s credit report in depth, so it’s best to know what’s on it before you apply. Legally, you are entitled to three free online credit reports per year. These records come from Equifax, Experian, and TransUnion. We advise you to check them online and certify that everything is in order.
If you find any errors in your report, you can file a complaint with the appropriate bureau as soon as possible. You can also do this online or by calling your local number.
Step Five: Pay off your debts
If you want to improve your credit points, paying off all your debts is the best alternative. Among them are credit card balances or other loans. Remember that the less deficit in your income, the more likely you will qualify for a large mortgage or better terms.
If you have large debts on your credit cards, lenders may deny the loan or offer you an alternative that is not advantageous to you. Make all the minimum payments each month and thus reduce the charges; you can also save money on interest, demonstrating to lenders that you are responsible for your liabilities.