Here's What Happens to Your Credit Score When You Spread Out Your Mortgage Rate Shopping

When you're gearing up to sign a large loan, like a mortgage, it's important to shop around for the best rate. Your mortgage is something you may end up paying off for 15 to 30 years. So the lower the rate you snag, the more affordable your monthly payments are apt to be.

However, to do your rate shopping, you basically have to apply for multiple mortgages. And that has the potential to hurt your credit score. You can minimize that damage significantly, though, by doing your rate shopping quickly rather than spreading it out.

It pays to move quickly when rate shopping

Any time you apply to borrow money, whether in the form of a mortgage, auto loan, or new credit card, a hard inquiry is done on your credit report. This is a lender or credit card issuer's way of checking your credit to make sure you're not too risky a borrower.

Every hard inquiry on your record has the potential to drag your credit score down by a few points -- usually somewhere in the vicinity of five to 10 points. As such, a single hard inquiry isn't so problematic, as it may not impact your credit score all that much. But multiple hard inquiries have the potential to lower your credit score by a larger sum. And that could be problematic when applying for credit.

That's why it's a good idea to do your mortgage rate shopping quickly. Experian, one of the major credit bureaus, explains that FICO, the most popular credit scoring model in the U.S., treats hard inquiries related to a single loan as a single credit event if they're done within a certain window. That window used to be 14 days, but is now most commonly 45 days.

In other words, let's say you apply with six lenders in an attempt to see which one has the best mortgage rate. If you submit one application per week so you're done applying in 42 days, that's within the 45-day window above. For FICO® Score purposes, those six hard inquiries related to your mortgage application will count as a single one. So while your score might drop five to 10 points, it shouldn't drop by, say, 30 to 60 points, which is a much bigger deal.

It pays to move quickly either way

Shopping for a mortgage quickly could help minimize associated damage to your credit score. But regardless of that, it's still a good idea to try to do your rate shopping quickly, because chances are, if you're at a point where you need a mortgage, you can't afford to dilly dally. 

You may be under pressure to close on a home you've made an offer on by a certain time. So the sooner you put your mortgage in place, the sooner that ball gets rolling. 

It's also a good idea to try to boost your credit score ahead of your mortgage application for the best possible rate. You can do so by checking your credit report for errors and, if possible, paying down some credit card balances you're carrying to lower your credit utilization ratio.