Impact of mortgage lender credit score checks

Impact of Mortgage Lender Credit Score Checks

Your mortgage may be the most significant loan of your life. Therefore, you must do your homework and carefully research any potential lender. However, as you note, shopping for a mortgage lender generally involves a check on your credit. Let’s look at the mortgage-shopping process, how a credit check affects your score, and some tips for choosing the right lender.

Credit score 101

First, let’s brush up on credit scores and why they matter. 

Your credit score is a three-digit number that serves as an indicator of your creditworthiness and financial responsibility. Your credit score can be anywhere from a “poor” 300 to an “excellent” 850. The score is calculated through various factors, including your credit utilization, payment history, outstanding debt, types of credit, and history of credit. The higher your score, the easier you’ll get approved for a mortgage and the lower interest rates.

What is a credit check?

When you apply for a mortgage, the lender will typically pull your credit report from one or more of the three major credit bureaus: Equifax, Experian, and TransUnion, which is known as a credit check. The lender will use the information on your credit report to determine your creditworthiness and whether or not you are a good candidate for a mortgage.

During the credit check, the lender will review your credit report and look for any red flags that may indicate that you are not financially capable of carrying a mortgage, including factors like missed payments, high levels of debt, or a history of bankruptcy. If the lender determines that you are not a good candidate for a mortgage based on your credit report and review, they may deny your application or offer you less favorable terms.

How does a credit check impact my credit score?

When a lender pulls your credit report, it can temporarily negatively affects your credit score. Each credit inquiry is recorded on your credit report and can be seen as a red flag by lenders. The good news is the impact is usually minor and temporary, and your credit score should bounce back within a few months.

The impact on your credit score will depend on various factors, including the number of credit inquiries, the types of credit inquiries, and your overall credit history. If you have a long and established credit history with a good payment history, a single credit inquiry may have little to no impact on your credit score. On the other hand, if you have a short credit history with missed payments or high debt levels, a single credit inquiry may significantly impact your credit score.

Should I limit my mortgage applications?

You can shop around for a mortgage without any additional impact on your credit score if you are mindful of the passing time. All credit checks from mortgage lenders within a 45-day window will be recorded as a single inquiry on your credit report. Creditors know you will only buy one home, so the multiple inquiries do not indicate numerous loan applications. You can take your time shopping for a mortgage and getting loan estimates from various lenders. Just be careful to do all your research within the 45-day window. 

How can I improve my chances of getting approved for a mortgage?

It’s best to boost your credit score before shopping for a mortgage. Here are some tips for bringing up your score:

  • Pay your bills on time and in full
  • Keep your credit card balances low
  • Avoid opening many new credit cards 
  • Check your credit report regularly and dispute any errors

How do I find the mortgage lender that’s right for me?

When researching potential lenders, you can start by asking family and friends who’ve recently taken out a mortgage for lender recommendations. Look up online ratings and reviews of potential lenders as well. As you check out various lenders, look for those that offer excellent customer service, reasonable closing costs and fees, transparency about the loan process, and favorable loan rates. 

Shopping for a mortgage will temporarily impact your credit score, but it’s a necessary step in the home-buying process. Use the tips outlined here to find the right mortgage lender and learn what happens when they check your credit score. 

If you’re ready to apply for a home loan, Community Resource Credit Union is here to help! Click here to learn more!