A reader asks HerMoney CEO Jean Chatzky about the right way to shop for a mortgage, and the impact it might have on her credit score.
Twice a week, our CEO and resident money guru Jean Chatzky tackles your burning questions in the HerMoney newsletter. We’ve pulled some of the best to feature on our website — and this one made the cut! Got a question for Jean? Send it her way right here.
Q: Today’s question comes from Terri. She writes: Is it true that I can apply for a mortgage through several companies/banks at the same time without it having a significant ‘ding’ to my credit rating?
A: It is true. And here’s why it’s important. There are five factors that go into creating your credit score: on-time bill payment, credit utilization, mix of credit, length of credit relationships and applications for new credit. Why would applications for new credit – like a mortgage, car loan, personal loan, or credit card – count against you? Because they are a signal to creditors that you need money. And the more often you’re in the market for additional cash, from a creditor’s perspective, the more likely you are to not be able to repay your debts.
So, when you put in an application, it dings your credit score – not a lot (this is one of the minor factors in your score, unlike on-time bill payment and credit utilization, which are major), but enough to care about minimizing it. But shopping around for a mortgage (particularly these days with interest rates higher than they’ve been in years) is an important part of the home-buying process. Luckily, multiple credit checks from mortgage lenders count as one single inquiry, so long as they happen within a certain time period. That time period depends on the credit scoring model used and will range from 14 to 45 days. For example, the latest FICO scores will give you 45 days to “rate shop.” VantageScore, on the other hand, offers homebuyers just 14 days. The safest way to shop around without being penalized is to limit your applications to a 14-day period.
Two last notes on this. While you’re in the process of doing this shopping (in fact, in the six months before), don’t mess things up by applying for other credit. Don’t fill out an application for a store credit card to get the 15% discount – or sign up for a new mileage card. Just wait until that mortgage is locked. And don’t worry about checking your own credit. Your inquiries into your own account don’t ding your record at all.
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