One of the major concerns people have when they start the home buying and mortgage process is allowing potential lenders to pull their credit reports. While it isn’t a good idea to allow everyone, you speak with to pull your credit report, a few credit inquiries generally will not affect your credit score. Since Realtors and sellers alike will want a mortgage pre-approval, as buyers you will at some point need to have your credit report run.
There are two types of inquiries, hard and soft. Hard credit checks are inquiries from lenders whom you have applied for credit. Soft credit checks are where your credit is not being reviewed by a potential lender. That would be from companies where you already have an account or from a company making an offer to you such as insurance agencies. Also, when you run your own credit report it’s considered a soft inquiry. Only hard inquiries affect your credit score.
According to Fair Issac Corp. (the company that created the FICO score) any inquiry within a 45-day period for a mortgage, car loan or student loan is considered one inquiry and should have a minimal effect on your credit score. Again, Fair Issac says that one additional inquiry will have between no effect (0 points) to 5 points on your score. Inquiries can have a greater impact if you have few accounts or a short credit history. Large numbers of inquiries can indicate greater risk: people with 6 or more inquiries are 8 times more likely to declare bankruptcy than someone with no inquiries.
So, what should you do? Start by looking for a lender you are comfortable with before you start having your credit report pulled. Find someone who is knowledgeable and puts your wants and preferences first. Just talking to a lender does not mean that you must work with that person. Take the time to find a good fit for you. Once you have found a lender or two with whom you are comfortable then allow them to pull your credit report. Most lenders will be able to advise you on how to improve your score if it does not meet guidelines when it is pulled and then will be able to get a new report after you have worked to improve your score.
It’s important to remember that buying a home is a process and it may take some work on your end to get to the finish line but it’s worth the effort!
