The answer to the question in this article’s title is a firm, “It depends.” That’s the answer. Now here’s the explanation.
Since a minimum credit score is required for most loan programs, the first thing a lender will do is check to see if your score measures up – this is known as a “credit inquiry.” There are two primary types of inquiries, a hard and a soft inquiry.
A hard inquiry will have a direct and almost immediate impact on credit scores whereas a soft inquiry will not. A hard inquiry is one where the individual has made a direct request for new credit. The request can be for a new automobile loan, installment loan, or a credit card. In these cases, a single, somewhat isolated request for new credit will have a marginal impact on credit scores.
Multiple requests for credit during a compressed period of time will eventually harm scores. The logic is that several quick requests for new credit could indicate an individual is on the cusp of financial hardship and the new credit accounts are intended as a budgetary life-preserver. These varied, numerous requests can keep companies from issuing new credit. Take, for example, the potential home buyer who thought he could go out and finance a new car and other items while he was in the process of applying for a home loan. He got the new car, but he had to park it in his old driveway. If you are committed to buying a house, you’re going to want to close the lid on any other credit applications while your mortgage application is being processed.
A soft inquiry is relatively benign and won’t affect scores at all. A soft inquiry is when someone requests their own credit report for a review. Soft inquiries are often made by employers or landlords and won’t hurt your score.
Applying for a Mortgage
When it comes to applying for a home loan, it’s important to understand the details. Let’s say you’ve applied for a mortgage loan but you haven’t heard anything back from the loan officer. After two weeks you want to apply for a mortgage at another lender but you’re concerned that another hard inquiry will ding your credit score. While this is a valid concern, the guidelines set forth by the Consumer Financial Protection Bureau have ruled that multiple requests for the same type of account within a 45 day period count as just one inquiry. Therefore, as long as you do it within 45 days of the first credit check by a mortgage company, there is no harm in shopping around when it comes to finding the right home loan.
Can credit inquiries keep you from getting a mortgage? As you can see, the answer depends on a number of factors. Your best course of action while in the mortgage application process would be to stay focused on the mortgage and do your best to hold off on non-mortgage credit applications (and major purchases as well) until after you have closed on your new home.
We’re providing you with just the basics here. We advise our clients to get the details on home loans from a mortgage professional. In fact, we keep a list of reputable lenders on hand. Just contact us through the form on this page or by calling 678-491-4173 and we’ll be happy to send you the list.
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