Will shopping around for the best deal on a mortgage loan negatively affect your credit score? The short answer is that it can but won’t in most cases. Read on to learn more about how your credit score is calculated and why it can take a hit if you make too many loan inquiries.
How Credit Scores Work
There are five main factors used to calculate your credit score. These are:
- Payment history
- Credit debt
- Length of credit history
- Type of credit used
- Credit inquiries
As you can see, credit inquiries do impact your score, albeit not as much as the first three factors on the list. The reason for this is that multiple inquiries can be an indication that you are shopping around for extra credit because you are facing financial challenges right now or expect to have financial trouble in the near future. Too many inquiries are a “red flag” that may cause credit companies to worry about your ability to repay money that you have already borrowed and/or are trying to borrow.
Why You Don’t Have to Worry about Mortgage Loan Shopping
Credit companies understand that multiple inquiries made as a result of shopping for a mortgage loan don’t indicate that you are a risky borrower. Many borrowers talk to more than one mortgage lender in order to get the best possible interest rate. This is a wise move considering the fact that lowering your loan’s interest rate by even a single percentage point can enable you to save tens of thousands of dollars in payments.
If you don’t stretch out your loan application process too much, you don’t really have to worry about multiple inquiries damaging your credit score. Experts recommend restricting your mortgage loan shopping to a 45-day period but you can take a bit more time as long as you don’t overdo.
Mortgage Investors Group is a mortgage company that offers plentiful loan options, personalized advice and effective assistance to help you purchase the home of your dreams without undue delay. Get in touch with a loan officer in one of our many branch offices to learn more about applying for a mortgage loan or to start the mortgage loan application process.