Buying a house is a big milestone. Mortgages are normally very large loans, so shopping around to get the best deal for you and your circumstances is crucial. Especially if you’re still working on improving your credit score. So, today we’ll explore if shopping for mortgage rates hurts credit scores and how to shop for a mortgage without hurting your credit.
Having a mortgage, and managing it responsibly, can do wonders for your credit score. And if you’re able to get good interest rates you can save yourself thousands over time. That’s why getting the right deal is important. If you’re wondering “Does shopping around for a mortgage hurt credit?” read on to find out more.
What is a credit score?
First things first, what is your credit score and why might you think about it being negatively impacted by mortgage shopping? Your credit score is a number that represents your creditworthiness. It reflects your credit history and financial behaviour. Higher scores mean better credit health and better chances of good deals.
If you want to secure a great mortgage option, having your credit score in good shape can improve your situation and make it more likely that your application will be accepted. Saving even a couple of percent on your interest rate can benefit your pocket in a big way at the end of your loan term.
Your credit scores are calculated by the top three credit reference agencies (CRAs) in the UK: Experian, Equifax, and TransUnion. You can find out more about them, and the difference between them, here. Lenders report your financial activity to the CRAs who generate your credit report and score.
When you apply for a mortgage, the provider will check your credit report to see how much of a risk it is to lend you the money. To do this they will perform a credit check.
What is a credit check?
During a credit check, lenders review your credit report to evaluate your creditworthiness and decide whether they’re willing to offer you credit, and at what rate they will require it to be repaid. There are two types of credit checks: soft (which don’t affect your credit score) and hard (which can impact your score). You can find out more about hard vs soft credit checks here.
Your credit report holds various pieces of information about you. These include your name, address, details of anybody you are financially connected to, and your history of managing debt. Lenders consider what sort of debts you have held, how much of the credit available to you you’re using and your current account balances.
When you shop around for a mortgage, discovering whether you will be accepted or not can trigger a soft or a hard check, depending on how you apply. But does shopping around for mortgage rates hurt your credit score?
Does mortgage shopping hurt your credit?
Shopping around for a mortgage can sometimes hurt your credit. Every time you apply for a mortgage, or try to get a pre-approval from a potential lender, you will likely be subjected to a hard credit check. Even one credit check can dip your score temporarily.
But if you’re declined or rejected and you make multiple follow-up applications, especially within a relatively short space of time, this can have a much bigger impact on your credit score. It can hurt your chances of getting accepted for another mortgage in future, or getting the rates you want.
However, shopping for a mortgage with several hard credit checks performed on your credit report within 45 days is actually treated as just one credit inquiry on your history. This is because the CRAs understand that you will need to get more than one quote when exploring mortgage options. This doesn’t majorly impact your credit.
How to shop for a mortgage without hurting your credit
So, does shopping for a mortgage hurt credit? Well, it can do yes. But there are ways that you can minimise the risks:
Spread out your applications
Applying for lots of mortgages over and over can be bad for your credit because it can look like you’re desperate for credit. That can make lenders believe that you’re struggling financially.
But, as mentioned above, if you make your mortgage applications within a 45 day window they are only considered to be one inquiry. This can still have an impact on your credit score, but it is comparatively small and can shift after a few months if you’re managing your other credit responsibly.
If all of your mortgage applications are declined, it’s a good idea to wait several months before you make a new round of applications. This is also true when applying for different types of credit, like credit cards and personal loans. Try to leave about six months between applications for credit cards and loans, and mortgage applications.
You can use the time you have between applications to research better offers, save more money for your deposit, and other types of mortgages that might be more suited to you. Perhaps it might be a good time to contact a mortgage broker — also known as a mortgage advisor — to seek professional advice? That can put you on a better footing when you start again.
Consider pre-qualification
Instead of making a formal application to a mortgage provider, it is possible to request a pre-qualification. Pre-qualifications are an estimate of your likelihood of being accepted and normally only require a soft credit check so you can get an idea of your chances before anything is fixed to your credit report.
If you are worried about your credit score, or you are concerned that your application might be declined for any other reason, this can be a great option to dip your toe in the water first. Remember that a pre-qualification is usually different to a pre-approval, which will often require a hard credit check. Check with your lender first.
Grow your credit score
Before you start shopping around for a mortgage, taking care of your credit score can help to improve your chances of being accepted. It can also give you better options and interest rates. To start with, it’s a good idea to check your credit scores yourself. You can do this for free, and without impacting it, using these services:
- ClearScore (uses Equifax data)*
- Experian App (uses Experian data)
- Intuit Credit Karma (uses TransUnion data)
* For transparency, if you decide to sign up to ClearScore using this link, we’ll receive a small commission.
If your credit score isn’t quite where you want it to be yet, don’t worry! Get started with Loqbox Grow. For just £2.50 per week you can boost your credit score with all three of the UK’s main credit reference agencies.
Also, if you’re renting while you look for your dream home, why not make your rent count towards your credit history with Loqbox Rent (included in the same price for full Loqbox membership). We report your regular rent payments to the CRAs and they include it as a positive action on your credit report.
Improvements to your credit score are not guaranteed.
So, will shopping for a mortgage hurt my credit?
In most cases, no. Responsible mortgage shopping is designed to minimise the impact on your credit score. By understanding the process and approaching it in the right way, you can confidently explore mortgage options and secure the best deals without compromising your credit health.
But just remember that too much shopping around between credit application rejections can harm your credit score. Make sure to check your credit score and get it into good shape before you start, then do your research and get advice so that you can make the right choice when it comes to finding the best mortgage for you.
You can read more about how to grow your credit score here. Or discover how mortgages affect your credit score here.
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