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Can Shopping Mortgage Rates Mean A Lower Credit Score?

shopping mortgage rates

At Team Nelson, our Dallas real estate agents know that nearly all potential homebuyers are aware that lower mortgage rates may be a result of high credit scores – but could shopping for mortgage rates actually lower your credit score? As a potential home buyer, this is a topic you need to be knowledgeable about. The short answer is no, but this is only in instances when home buyers manage shopping for a mortgage using the correct process.

If you’re shopping for a home in the Flower Mound, Highland Village, Frisco, Denton, or other areas surrounding the Dallas-Ft. Worth metro, here is how you can shop the best mortgage rates while preserving your credit score:

It’s important to know which three credit bureaus generate your credit scores; these are Experian, TransUnion, and Equifax. Creditors report such activities as auto loans, credit cards, student loans, and mortgages to these three bureaus, which is how they determine your credit score on a continual basis. Certain factors can impact your credit score on a monthly basis including:

  • Making payments on time
  • Balances on your credit cards relative to limits
  • Number of credit inquiries by potential lenders
  • How many open accounts you have, and how long thee accounts have been open

You may not know it, but car and mortgage inquiries do not hit your credit score as hard as credit card inquiries. Having several department stores who offer credit cards inquire about your credit will affect your credit score far more than auto and mortgage inquiries, usually lowering your score for each inquiry.

Mortgage and auto inquiries are less damaging to your credit score because the bureaus understand that consumers shop for those items considered “big ticket.” If you have a brief credit history or just a few accounts, every inquiry performed by credit card companies can lower your score by as much as five (5) points. This can affect your credit score for about one year.

Ultimately, credit bureaus understand that when shopping for “big ticket” items, consumers typically have multiple mortgage inquiries; the same is true when someone is shopping for a vehicle. Because the end result of car/mortgage shopping is one item, it is not as detrimental as credit inquiries performed by credit card companies, department stores, etc.

How to avoid damaging your credit while shopping mortgage rates

Overall, it’s best to have your mortgage shopping completed within 14 days, because as the top three bureaus continuously change scoring models, newer models allow consumers to shop longer for a mortgage with several lenders, with all inquiries scored as a single inquiry. You cannot know which model is being used at a lender at any specific time, however the oldest models use data reported over the past two weeks (14 days). Therefore, 14 days is a “safe” time frame.

At Team Nelson, we provide tips to potential homebuyers who are thinking of purchasing a Dallas-area home in an effort to make the process easier. Hopefully the tips above will help you understand which processes will affect your credit score, and which won’t. Contact our Flower Mound real estate agents today for more advice and guidance to help make the home buying process easier!

What People Are Saying

We love using Team Nelson to buy and sell homes! The entire team is incredibly knowledgeable, helpful, and responsive. Tara has been are go to for anything we need to know about local market and market trends. They will schedule a meeting in person at your home and give you honest expectations of the sell of your home. They meet and often exceed the expectations they set for their customers.
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Demi Devine