Raleigh Mortgage News

Ever wonder what happens to your credit score if multiple lenders all do a credit check? This question comes up a lot so let’s get down to the basics on how mortgage credit inquiries really affect your credit score.

First things first: The effect of a mortgage inquiry on your credit score is small.

Here’s why: Your FICO® Score is typically used (credit scores rank from 300-850) with a mortgage credit inquiry estimated to lower your credit score a mere 3-5 points. This small hit to your credit should fade away in within a year if everything else on your credit report remains in good shape.

  • 65% of that score is linked to two things—your payment history and your credit utilization (the ratio of your credit card balance to your actual credit limits)
  • 15% of your credit score is tied to your credit history (how long you’ve had credit in your name)
  • 10% is linked to the type of credit that’s maintained (usually auto and mortgage loans fall into this category)
  • The remaining 10% is any new credit inquiries/new credit you may have

Quick tip: Shop for your home loan within a 14-day period.

If you shop for your home loan within this 2-week period, you can have your credit checked by an unlimited number of lenders within this time with potentially only one single credit score penalty. With mortgage applications, you only get one approval for that specific home loan, unlike if you apply for three credit cards, you can get approved and use all three cards. Make sense?

Additional information: Credit inquiries can be confusing, so learn the basics.

A credit inquiry is a formal request to review your credit report through the three credit bureaus (Experian, Equifax, and TransUnion). Credit inquiries come in a variety of forms but here are the most common:

  • A credit check for a mortgage loan
  • A credit check for an auto loan
  • A credit check for a credit card application
  • A credit check for a store credit card, or consumer loan

Each of these credit inquiry types receive different treatment by the credit bureaus. For example, a credit card application carries more weight than a mortgage loan and can cripple a credit score. This is because credit card debts tend to be higher over time, which weakens your overall credit position. Mortgage debt, by contrast, eventually pays down to $0

Posted by Bobby Hill on April 19th, 2018 5:19 PM