How do 'Credit Inquiries' affect your credit score?
As real estate agents, we counsel our clients to talk to 2-3 mortgage lenders before making a decision on how to finance their home purchase. Lenders offer various loan products, have different fees, and their mortgage rates may vary as well. You also want to make sure you are comfortable with the loan officer and lending company you select. It's a good thing to shop around.
Recently, a client expressed concern about whether these conversations (and the inevitable "credit inquiries" (also called "credit pulls") would lower her credit rating and therefore impact her ability to purchase a home. I spoke to a couple of the lenders we frequently work with (and read a bunch of online articles), and here's the scoop:
Are all Credit Inquiries the same?
Simple stated, no. There are two types of credit inquiries, generally referred to as hard pulls and soft pulls. Soft pulls (soft inquiries) don't affect your credit score (Also called your "FICO Score") and don't show up on credit reports. Generally, you initiate a soft pull when you check your own credit report.
Hard pulls are generally initiated by lenders when you apply for a credit card or a mortgage. These credit inquiries do affect your credit score (usually dropping a few points) and will stay on your credit report for up to 2 years. It's important to note that these hard pulls do require your permission, and lenders will request that you sign an authorization before they perform the inquiry.
Will shopping for a mortgage hurt my credit score?
From what I've been told and read, most hard inquiries will temporarily reduce your credit score by three to five points - but only temporarily. If you're shopping for a mortgage and lenders want to pull your credit, do it within a 14 day period - the credit bureaus will only count it as one hard inquiry. Note: I've seen some articles that say all hard pulls in a 30-60 day window will count as one inquiry, but the majority say 14 days.
How can I shop for a mortgage without reducing my credit score?
Since you can review your own credit report (a soft pull), find out your credit score and have it ready when you talk to lenders. Tell the loan officer, "I pulled my credit score, and it was XXX." Ask them to provide information to you based on this credit score, without them making an actual credit inquiry. They may resist ("well, I need to verify your score") but tell them that you're concerned with too many inquiries affecting your score and that you understand their advice is just an estimate until they see an official credit report. This will allow you to get multiple quotes, based off the same info, without impacting your credit.
Once you've found a lender you're comfortable with, then authorize them to pull a credit report.
For more information, here are some great sources of information: