If you’re in the market for a new home, then you’ve probably already thought about the implications of obtaining a 15- or 30-year mortgage — specifically, how crucial the interest rate can be.
Even the smallest difference in an interest rate can have a massive impact on the total cost of a mortgage once that monthly cost adds up over several decades. That’s why it’s so important to shop for a mortgage as diligently as you shop for a house.
The problem is, many people worry that applying for more than one mortgage can do serious damage to their credit scores (yes, everyone has more than one credit score). But it doesn’t have to. Here’s how you can protect your credit while buying a house.
How the Right Timeline Can Help You Protect Your Credit While Buying a House
If you want to get the best possible deal on a mortgage without damaging your credit in the process, there’s one really simple thing you can do:
Apply for all the home loans you want to apply for within a span of two weeks — and apply for the same amount every time.
Here’s why this works. If you apply for the same type of loan and the same amount of money with multiple different places in a contained period of time, it becomes very obvious that you’re not trying to get all of the loans, but that you’re looking for the best loan for you.
Credit scoring companies and lenders have no problem with this. In fact, they understand the prudence behind this method. Here’s what VantageScore has to say about it:
“ … you absolutely should shop around when applying for credit, to look for the best interest rates, down payment requirements, and other terms you can get.”
VantageScore, which is the second most popular credit score (and rising) compared to FICO, goes on to say that the best thing you can do is do all this rate shopping within a window of two weeks:
“The VantageScore model treats multiple hard inquiries by utility companies, as well as those made in connection with mortgage and auto loans, as one inquiry, provided they are made within a rolling two-week window. That way, they only impact your credit score once.”
So, what does FICO have to say? Pretty much the same thing:
“One exception [to counting every credit inquiry as one hard inquiry] occurs when you are ‘rate shopping’. That’s a smart thing to do, and your FICO score considers all inquiries within a 45-day period for a mortgage, an auto loan or a student loan as a single credit inquiry.”
FICO gives people a bit of a longer time frame within which to rate shop (45 days instead of 14), but you probably see the point. Keep your loan applications within a small window, and you’ll be able to find the best deal you can without hurting your credit scores.
Rate Shopping for the Win
Now that we’ve put the idea to rest that rate shopping hurts your credit scores, there’s just one more thing to consider:
If you’re applying for a home loan, consider avoiding applying for other credit at the same time unless you really need it.
The month you’re getting a mortgage isn’t necessarily the best month to also get a new car or go for that retail credit card being offered to you with a discount for your purchase. Although these hard inquiries don’t have a massive effect on your score, it could unnecessarily ding your score when you need it to be at its absolute best. (This is especially true if your credit scores sit on the cusp of two different credit score ranges.)
So, keep in mind that rate shopping doesn’t just work if you apply within a short period of time — you also need to apply for the same type of credit. Happy home shopping!
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