When it comes to getting a mortgage for a home, there are various factors a lender will take into consideration regarding your financial background, one being your credit. A credit score is viewed as an indicator of your ability to consistently make payments on time, and for the correct amount on any sort of loan.
Although credit scores are not the end-all-be-all for your ability to qualify for a mortgage, your credit is something you should actively try to improve if you are planning on buying a home in the near future.
Your Credit Score Matters to Your Mortgage
We know that having good credit is important, but why? One of the reasons is that your credit can impact the overall cost of your home. If you have a lower credit score, you will inevitably pay significantly more over the lifetime of your loan, and have higher monthly payments, due to the higher interest rates for your score.
What’s a Credit Inquiry?
For a lender to know your credit score and history, they have to conduct an inquiry. Lenders and other companies can look at your credit bureaus to gather your credit score and analyze payment history, number of lines of credit and more. Not every credit inquiry is the same; there are soft inquiries and hard inquiries.
Soft Inquiries
Soft inquiries do not hurt your credit score, and can happen without your consent. For example, if you check your own credit score, it is considered a soft inquiry and would not affect your score. Another instance could include if you are currently borrowing from a lender, they might run a soft credit inquiry to make sure that you’re maintaining your financial standing.
Hard Inquiries
Hard inquiries take place when you apply for new credit. While this doesn’t dramatically affect your score, it can lower it. Because hard inquiries affect your credit score, your consent is required for hard credit inquiries.
How Do I Avoid Damaging My Credit Score When Getting a Mortgage?
Considering that a lender or broker will do a hard inquiry on your credit, it might be tempting to avoid applying for mortgages from multiple lenders to avoid affecting your credit score. However, inquiries made within the same 14 to 45 days are usually counted as one inquiry, even if different lenders make them. This means that you are able to shop around for the best mortgage without fear of affecting your credit score. To ensure your credit isn’t unnecessarily impacted, avoid doing anything that might hurt it during the home buying process, such as:
- Making large purchases using credit cards
- Financing a vehicle
- Opening new credit reporting items such as new loans or lines of credit
