Comparing offers from more than one lender is one of the most effective ways to save money on a mortgage. Yet many buyers hesitate because they worry that every credit check will drag down their score. Credit scoring models actually account for rate shopping, and understanding how they do it lets you compare lenders with confidence.
Hard and soft inquiries
A soft inquiry happens when you check your own credit or when a company reviews your file for a prescreened offer. Soft inquiries do not affect your scores. A hard inquiry happens when a lender pulls your credit because you applied for credit. Hard inquiries can have a small, temporary effect on your score and appear on your report for a period of time, but their influence fades.
Some lenders can give a rough pre-qualification using a soft pull or information you supply. A formal pre-approval or an application usually requires a hard pull.
How scoring models treat mortgage shopping
Widely used scoring models group multiple mortgage inquiries made within a short shopping window and count them as a single inquiry for scoring purposes. The length of that window depends on the scoring model and its version, which is why the Consumer Financial Protection Bureau suggests keeping your mortgage shopping within a fairly short period. In practice, that means getting your quotes close together instead of spreading them over many months.
This grouping applies to inquiries for the same type of loan. Applying for a car loan or a new credit card during the same period is treated separately and can add to the effect on your score.
A practical rate-shopping plan
- Check your own credit first. Review your reports from AnnualCreditReport.com and fix errors before lenders pull them.
- Choose your shortlist. Consider banks, credit unions and mortgage companies, and verify each lender and loan officer on the NMLS Consumer Access website.
- Apply within a short window. Submit applications to your shortlist close together so the inquiries are grouped.
- Request Loan Estimates. Once you provide the required basic information, a lender must give you a standardized Loan Estimate within a few business days. The common format makes offers easier to compare.
- Compare like with like. Use the same loan type, term, down payment and lock period for each quote.
What to compare on the Loan Estimates
- Interest rate and APR: the APR reflects certain fees along with the rate, so it helps compare total borrowing cost.
- Origination charges and discount points: a lower rate may come with points paid up front.
- Services you can shop for: such as title services and survey.
- Cash to close: the estimated amount you need at closing.
- Rate lock terms: how long the rate is locked and what happens if closing is delayed.
Protecting your score during the process
- Avoid opening new credit cards or loans until after closing.
- Keep paying every bill on time and keep card balances low.
- Do not close old accounts without asking your loan officer, since it can change your utilization and history.
- Expect many lenders to re-check your credit or employment shortly before closing.
Key takeaways
- Shopping for a mortgage is expected, and scoring models group mortgage inquiries made within a short window.
- Get all your quotes close together and compare standardized Loan Estimates.
- Compare rate, APR, points, fees and lock terms on the same loan scenario.
- Avoid new credit until your loan has closed.
This article is general information, not legal, insurance, tax or lending advice. Rules and lender requirements change, so confirm details with your lender, the relevant Texas agency or a licensed professional.