September 29th, 2015
It’s difficult to begin shopping around for a new mortgage without the facts on how this can affect your FICO score.
Anybody who is holding off for fear that their credit score will be ruined by multiple credit checks has nothing to worry about. Mortgage brokers require this information to give an accurate quote, so many credit checks by different companies will have a miniscule effect on credit scores.
The system has been designed this way because a mortgage is not considered to be ‘bad debt’ by lenders and consumers should have the right to shop around without fear of their credit being destroyed by it.
Understanding The ‘Tiers’ Of Credit Checks
FICO scores are affected each time a credit inquiry is requested to check a borrower’s credit report. This makes sense, as every time somebody searches for new credit they increase their ability to acquire significant debt.
Thankfully, not all credit checks are created equal and they do not affect FICO scores in the same way. A mortgage loan is not considered remotely close to store credit cards, which allow a person to get into more debt. Debts on mortgages only get lower as time goes on, ranking them very low on the list of things lenders consider bad credit.
The One Thing To Know Before Shopping For A New Mortgage
Every time a credit card company or consumer loan company pulls a credit check, the borrower’s FICO score will fall, but this will not happen when multiple mortgage lenders pull the same person’s credit score.
This is because each credit card has the chance to accumulate debt, whereas only one mortgage will be taken out. So once a mortgage lender pulls your credit score, you will only receive one ‘ding’ even if other lenders pull your score afterwards.
Here is the important part: there is only a 14-day window from the first credit check where all other credit inquiries will be ignored. So it is imperative to plan ahead and shop around within a two week period to limit the impact on your FICO score.
Shopping around when looking for a new mortgage is a necessary step to getting the best possible deal, and thankfully the system is designed around not punishing people for doing this. It can be very intimidating to do alone and working with a professional mortgage specialist can relieve stress and get you the best deal on your new mortgage.
If you have any questions please contact your trusted mortgage professional for advice on the right steps to getting your new mortgage.