Mortgage applications: Will this affect my credit score?

The short answer? Yes, applying for a mortgage will affect your credit score. A better question to ask is, how much of an impact will a mortgage application have on your credit rating? The answer to this question lies in the number of lenders that have asked for your credit report. 

Applications and inquiries

"Those with six or more inquiries are eight times more likely to declare bankruptcy."

When you submit a home loan application, you give the lender the go-ahead to ask a credit bureau for your credit report. This request is known as a hard inquiry. If you take a look at your credit report, you'll notice that it lists multiple hard inquiries. They aren't necessarily a bad thing but they can work against your credit score. 

For example, if you open multiple lines of credit within a short amount of time, this indicates that you may be a risky borrower. Why? It's a sign that you're having trouble managing your credit. In fact, according to FICO, if you have six or more inquiries on your report, you are eight times more likely to declare bankruptcy, statistically speaking.

In general, a hard inquiry will take less than five points off your FICO score, but this may not be the case for you, depending on the length of your credit history and the number of accounts you have open. 

This is why you need to be careful when shopping around for a cheaper mortgage. Submitting multiple applications can generate multiple hard inquiries, which could decrease your credit score. As a result, you may actually end up paying a higher interest rate on your home loan, because the loan officer will see that your credit score decreased. Credit&Coffee noted that hard inquiries can also stay on your credit report for some time:

How to reduce the impact of inquiries
You may think you're in a bit of a pickle: How do you find the best deal out there without harming your credit score? Believe it or not, you have a couple of options:

  1. Opt for soft inquiries: Many banks and mortgage lenders are recognizing that hard inquiries can impact your credit score, and so allow you to see the details of the offer without officially applying. When they do this, lenders submit "soft inquiries", which have no affect your credit score, according to Forbes.
  2. Submit all applications within 45 days of one another: noted that if your apply for several home loans within a 14 to 45-day period, all the inquiries will count as one. Therefore, your credit score won't take as big of a hit.

As you can see, there are many ways to navigate this situation. Whether you want to submit multiple applications at once or stick to soft inquiries, you'll be able to find the home loan deal that fits your needs.  

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