Shopping around doesn’t just apply to getting the best deals on winter clothes or home appliances. When buying a house, you should shop around for the best mortgage loan. Mortgage preapprovals from several lenders can help you find the best loan for your needs, preferably with the lowest interest rate. Over the course of a loan, a lower interest rate will save you thousands of dollars.
HOW HARD INQUIRIES AFFECT YOUR CREDIT SCORE
If you apply for multiple loans, you may worry that your credit score will suffer. In most cases, when lenders pull your credit, a hard inquiry appears on your credit report. You may see a drop in your credit score after a single hard inquiry, but it won’t last for too long. In contrast, multiple hard inquiries can indicate a desperate need for credit, and your credit score may take longer to recover. Shopping around for the best mortgage won’t negatively impact your credit score if you do it correctly.
GIVE YOURSELF LIMITED TIME TO SHOP AROUND
You can’t avoid pulling your credit when you shop around for a mortgage – it’s a fact of life. However, if you limit your rate shopping to a short period of time, you can avoid having several hard inquiries negatively impact your credit score. Due to this, most credit scoring models group all hard inquiries of the same type as a single credit inquiry if they occur within a limited period of time.
The FICO® Score model has a 45-day window. So, if both inquiries from the first and last lender you work with fall within a 45-day period, every credit check can be combined into a single inquiry with minimal impact on your FICO® Score.
Even if an inquiry appears on your credit report outside of the designated window, shopping for the best mortgage is probably worth it. As a result, your credit score can recover after a relatively short period of time, while you save money from a lower interest rate as long as you are paying back the loan.
A STRATEGY LIKE THIS WORKS ONLY FOR CREDIT INQUIRIES OF THE SAME TYPE
Please note that this policy only applies to the same type of credit inquiry, whether it be a mortgage, credit card, auto loan, or other credit inquiry. Therefore, if you apply for a mortgage and a credit card in a short period of time, your credit report will reflect multiple inquiries.
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