Multiple Mortgage Inquiries? It's OK to Shop Around
You may be wary about shopping around for mortgage lenders, as each lender will most likely need to pull a credit report in order to review your credit history and determine the type of loan or interest rate they will be able to provide for you. But, it’s important to know that a mortgage inquiry is treated differently from other types of credit inquiries.
HOW AND WHY DOES APPLYING FOR CREDIT AFFECT YOUR CREDIT SCORE?
Each time you apply for credit, you are authorizing that lender to pull an inquiry of your credit history. A credit inquiry is a formal request to view your credit report. Inquiries count toward your credit score if they are applications for new credit. While credit inquiries will generally have a smaller impact on your credit score than other factors, they can still have a direct affect for the following reasons:
You open several credit accounts in a short period of time. This can indicate that you represent a greater credit risk to lenders.There have been a large number of inquiries pulled on your credit history.Your credit history is shorter or you have few accounts open.
According to FICO, people with six or more credit inquiries on their reports can be up to eight times more likely to declare bankruptcy than a person with no inquiries on their reports. However, more important factors that affect your credit score include the timeliness in which you pay your bills and your overall debt.
WHY ARE MORTGAGE INQUIRIES TREATED DIFFERENTLY FROM OTHER TYPES OF INQUIRIES?
Credit bureaus have made it a policy to permit rate shopping. Rate shopping allows you to shop around at different lenders and determine who will be able to give you the best interest rates and terms. This will ultimately result in multiple lenders pulling your credit reports and scores.
This may throw up a red flag due to the fact that your credit report could get stacked with multiple credit inquiries in a short period of time. However, mortgage related inquiries are ignored for the first 30 days that they are on your credit report. After the 30 days, any of the inquiries that occurred within the same 45-day period will be treated as one inquiry on your credit score. This allows consumers to aggressively shop for rates and find the best deal without having to worry about the affect on their credit score.