Will Multiple Mortgage Inquiries Lower Your FICO Score?
Choosing the right mortgage is one of the most important financial decisions you will make. Finding the lowest rate can save you thousands of dollars over the life of your loan. But will shopping for a lower rate result in a lower FICO score due to multiple credit inquiries?
What is a FICO Score?
If you’re shopping for a home loan, you’re likely already quite familiar with your FICO score. This three-digit number, which ranges from 300 to 850, is used by mortgage companies and lenders to determine the risk of lending you money. The higher the number, the better your credit. People with higher scores are typically less likely to default on their loans. And the better your credit the more likely you are to qualify for a lower interest rate. Even one point can make a difference in qualifying.
Components of a FICO Score
The three major credit bureaus determine your credit score by looking at these aspects of your financial profile:
- Payment history (35% of your score)
- Amount of available credit used (30% of your score)
- Length of credit history (15% of your score)
- Mix of credit account types (10% of your score)
- Number of recent accounts open (10% of your score)
Hard Inquiries vs Soft Inquiries
When you apply for credit you are allowing the lender to receive a copy of your credit report from the credit bureaus. There are two types of credit inquiries, hard inquiries, and soft inquiries. Soft inquiries occur when doing employment verification and background checks. The same goes for “pre-qualified” credit card and insurance offers. However, your FICO score is only impacted by hard inquiries. Hard Inquiries occur when applying for a mortgage, auto loan, credit card, student loan or personal loan.
The Impact of Multiple Hard Inquiries
Currently, with the newest version of the scoring formula, credit bureaus use a 45-day span of activity to recalculate your credit score. When you’re shopping for a home, the multiple credit inquiries from different lenders are treated as one inquiry regarding your credit score, as long as they are done within this 45-day period. Therefore, multiple inquiries for mortgage loans will be treated as one and should not lower your FICO score. This means you don’t have to worry about impacting your credit score while shopping for the best rate.
If you’re shopping for a mortgage in San Diego, trust the John G Mortgage Team to find you the best mortgage with the lowest rate. Contact us for a free consultation at 858.252.2154 or complete our online form.