6 Ways to Shop Around for a Mortgage Without Lowering Your Credit Score

April is Financial Literacy Month and Mountain America Credit Union strives to provide educational resources to help develop better financial habits—not just this month, but all year long! Today, we're talking mortgage and credit scores. Keep reading to learn more!

Are you ready to purchase a new home? Whether you’re a first-time homebuyer or a seasoned homeowner, you’ve probably done your share of research—and it’s a good bet that you’ve encountered the recommendation to compare mortgage rates before choosing a lender. Decreasing your rate by as little as 0.125% can save you thousands of dollars—maybe even tens of thousands, depending on the size of your loan.

That’s why comparison shopping for a mortgage is so important. So now the question is how can you shop around for a mortgage without lowering your credit score?

Let’s break it down:

1. Check your own credit report—Before you start mortgage shopping, review your credit report. This gives you an opportunity to fix any errors that may hurt your score. Fortunately, this is a simple process—just go to annualcreditreport.com. Every person is entitled to one free credit report per year from each of the three main reporting bureaus. The report is free, however, you may have to pay for your credit score. Before you shell out any cash though, check with your credit union, bank or credit card company to see if they provide your score for free.
    

2. Pay your credit card debt down—When deciding whether to approve a mortgage, lenders pay strict attention to utilization rate—how much total credit limit you’re currently using. That’s why it’s a good idea to pay down outstanding balances as much as possible before applying. The more you pay off—and reduce your utilization rate—the higher your credit score will be. That means the better chance you have of qualifying for a lower interest rate.
    

3. Get prequalified—You’ve probably heard the terms “prequalified” and “preapproved.” Aside from taking less time and requiring less documentation, prequalification results only in a soft inquiry on your credit. It’s a way to prescreen your credit score without lowering it. While the amount you are prequalified for is only an estimate, it is a helpful guide to understand how much home you can afford.
    

4. Shop within a short window—Consumers have 14–45 days to comparison shop without damage to their credit. According to the Consumer Financial Protection Bureau, multiple credit checks during this time will be recorded as one inquiry, resulting in a minimal credit score dip.

    

   So, how do you know how long you have? It comes down to which credit scoring model the individual lender is using—new models give consumers up to 45 days. But, if your lender is using an older scoring model, you may only have 14 days. It may take some dedication but, if you’re ready to make the jump into a new home, you should be able to get your mortgage shopping done well within two weeks.
    

5. Mortgage shopping past 45 days—What if your circumstances take you beyond 45 days? Your credit will probably be dinged more than once but the negative effect of an additional inquiry should be minimal. Overall, your savings from securing a lower mortgage rate will outweigh any short-term impact to your credit score.

    

   Bottom line: do your best to shop quickly.
    

6. Put the brakes on borrowing other money—A riskier move while mortgage shopping is applying for new credit such as an auto loan or credit card. If you have other needs, take a look at your finances and prioritize. Depending on your situation, you may want to put a new home on hold for six months or so. Or, if you’re just anxious for a new car but your old one will be fine until you close on a mortgage, simply hold off until you have those house keys!

Shopping for a mortgage is an exciting step in your journey to homeownership. When you understand how mortgage shopping affects your credit score and can take steps to mitigate the risks, you can avoid setbacks along the way.

In honor of Financial Literacy Month, Mountain America has a new way to get your kids learning, earning, saving and spending—and they can even win prizes for doing so! Download a copy of our Adventure Guide and earn multiple entries by completing activities. Get all the details on our contest page.