Many mortgage borrowers believe that when lenders check their credit it reduces their scores a certain number of points. Folks, this is a total myth! There's a lot of misinformation out there, so my goal is to set the record straight. Yes, it's possible that checking your credit can hurt your scores, but usually only when you do it an excessive number of times.
According to MyFICO.com, the reason inquiries can impact your scores is because research has shown that borrowers who open a lot of new accounts in a short period of time are riskier to lend to. In other words, if you have a lot of inquiries, it makes you look like you really need a loan bad, and lenders prefer not to give loans to people who desperately need one. They prefer to lend to people who don't really need the money - as strange as that might sound.
The key point is that this isn't so much about having an inquiry as it is looking like you desperately need a loan. The reporting agencies know that most mortgage shoppers will want to look around a bit for the best deal, so the scoring models are set up with that in mind.
Shop Around, But Keep It Reasonable
Allowing a few mortgage lenders to run credit won't be an issue as long as you do it in a fairly short period of time and keep the number of inquiries reasonable. According to MyFICO.com, if you complete your shopping in a short period of time, the scoring model counts the checks as a single inquiry.
How long the window of time is can vary from lender to lender depending on what scoring model they use, but it's usually 14 to 45 days. Don't get hung up on what time window your lender might use, just make sure you get your shopping done in a reasonable amount of time. As long as you do that, and you don't go crazy with the inquiries, you shouldn't harm your scores.
The key point to take home is that shopping around a bit to make sure you get the best deal possible won't hurt your scores as long as you get it done in a short period of time and keep the number of inquiries reasonable.
And if you have great credit to begin with, it probably won't be an issue anyway even if your scores drop a few points. Once your credit scores are above 740, it doesn't really matter anymore to a lender.
According to MyFICO.com, the reason inquiries can impact your scores is because research has shown that borrowers who open a lot of new accounts in a short period of time are riskier to lend to. In other words, if you have a lot of inquiries, it makes you look like you really need a loan bad, and lenders prefer not to give loans to people who desperately need one. They prefer to lend to people who don't really need the money - as strange as that might sound.
The key point is that this isn't so much about having an inquiry as it is looking like you desperately need a loan. The reporting agencies know that most mortgage shoppers will want to look around a bit for the best deal, so the scoring models are set up with that in mind.
Shop Around, But Keep It Reasonable
Allowing a few mortgage lenders to run credit won't be an issue as long as you do it in a fairly short period of time and keep the number of inquiries reasonable. According to MyFICO.com, if you complete your shopping in a short period of time, the scoring model counts the checks as a single inquiry.
How long the window of time is can vary from lender to lender depending on what scoring model they use, but it's usually 14 to 45 days. Don't get hung up on what time window your lender might use, just make sure you get your shopping done in a reasonable amount of time. As long as you do that, and you don't go crazy with the inquiries, you shouldn't harm your scores.
The key point to take home is that shopping around a bit to make sure you get the best deal possible won't hurt your scores as long as you get it done in a short period of time and keep the number of inquiries reasonable.
And if you have great credit to begin with, it probably won't be an issue anyway even if your scores drop a few points. Once your credit scores are above 740, it doesn't really matter anymore to a lender.
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Also check out: What is debt-to-income and loan-to-value and why do they matter when getting a home loan?
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