Here's What Happened to My Credit Score After I Applied for a New Mortgage Loan

Recently, I applied for a new mortgage loan as I'm going to be buying a house soon. In fact, I actually applied for several mortgage loans. This was necessary for me because I am self-employed, which tends to make mortgage lenders nervous.

I did not qualify for most fast pre-approval applications or for pre-approval applications with only soft credit checks. Self-employed borrowers like me typically have to go through a more comprehensive application process. I had to get hard credit checks, which means lenders pulled my credit report and an inquiry was posted on it as a result.

Since I applied with several different lenders in order to compare rates and offers, I had a whopping five new inquiries on my credit report. Those inquiries will be there for two years. And, if you're aware of how the credit scoring formula works, you'll know that the number of inquiries can affect your score. Too many inquiries tend to result in a lower score because lenders generally become concerned that you're going too deeply into debt if you ask a bunch of lenders for new loans.

So, here's what happened to my credit score when I applied for multiple mortgage loans and ended up with hard credit checks.

The impact of new inquiries on my credit score

I check my credit score regularly and I took a look at my score both before and after the new inquiries were posted on my credit report. I was nervous to see what happened to my score once the five inquiries showed up, but it turned out that while some damage was done, it was very minimal.

In fact, after the five inquiries posted to my credit report, my score went down a grand total of three points! This came as a huge surprise to me, as I was expecting a much bigger drop. But I suspect there are a few reasons why my score barely declined at all.

One big reason is because multiple inquiries for the same kind of loan in a short period of time (typically 15 days to 45 days) tend to be grouped together and treated as one inquiry. In other words, even though I had five inquiries, the scoring formula and lenders would likely look upon all my requests for credit as being the equivalent of a single request for credit. And that makes sense; after all, it's not like I'm going to take out five mortgages. Lenders realize this is just shopping around, so it doesn't do much damage.

Another reason my score wasn't really hurt is because I didn't have any other inquiries. I try to be careful about applying for new credit, especially since I knew I'd be getting a mortgage soon, so even with these new records, I didn't have too many.

Don't worry too much about your credit score when shopping for a loan

The moral of this story is, shopping around for a loan isn't necessarily going to hurt your credit as much as you think and you shouldn't be afraid. In fact, most people are probably better off taking a slight hit to their credit in order to compare mortgage rates and terms on loans rather than just settling for whatever their first potential lender offers.

You should try to find lenders that will do soft credit checks when possible, and you should be careful about not applying for too many different kinds of loans or credit cards, as those behaviors can really hurt your score. But if you're shopping around to find the best loan, the potential impact of this smart financial move on your credit score likely won't be as bad as you think. At least it wasn't for me!