When you are applying for any type of financing, you need your credit score to stay as high as possible in order to qualify for the best interest rates. This is extra critical with a mortgage due to how long you will typically be paying it off. Even a small increase in interest due to a lower score could result in spending significantly more money over the long run on your home.
You may be aware that hard credit checks can damage your credit score. This could make you wary during the mortgage process. You might be worried about whether you should let lenders pull your credit (mortgage lenders and otherwise).
Although these concerns are reasonable, many homebuyers worry far more about hard credit pulls than they need to. Let’s explain why.
Soft vs. Hard Credit Pulls
First of all, there are two different types of credit checks: soft and hard. Hard credit checks ding your score, but soft credit checks do not.
During the mortgage pre-approval process, your mortgage company may use a soft pull in order to avoid dinging your score. You can ask about this before you get started.
How Many Points Does a Hard Credit Pull Drop Your Credit Score?
Let’s say, however, that a mortgage lender does give you a hard credit check—or that some other lender does. What will the impact be on your mortgage application?
Experian writes, “According to FICO, a hard inquiry from a lender will decrease your credit score five points or less. If you have a strong credit history and no other credit issues, you may find that your scores drop even less than that. The drop is temporary. Your scores will bounce back up again, usually within a few months.”
Experian points out that if there are multiple credit pulls within a period of 2 weeks to a month, your credit score will only be dinged once (the time period depends on the particular credit score in question).
How Big a Problem is a Five-Point Drop in Credit Score?
If you do have a five-point drop in your credit score, how much does it matter? Generally speaking, usually not much, especially if you have a strong credit score.
Small drops become more concerning if your credit score is under 700. This is where you will see higher rates for every 20-point decrease. The increases in rates also are higher in the lowest score ranges.
So, the question is whether that five-point drop will put you across one of those thresholds or not. If the answer is “no,” then you should be fine. But if the answer is “yes,” then you will want to go out of your way to avoid an unnecessary hard credit pull during the mortgage application process.
We Bring You Competitive Rates
At PLC, we specialize in connecting homebuyers with competitive mortgage rates, even without a perfect credit score. We even offer a price matching guarantee. During your consultation, we can also answer your questions about credit scores and mortgages, and give you tips for maintaining or raising your score before you apply.
If you are ready to buy a home in Florida with an affordable mortgage, please call 954-840-8811 to schedule your consultation.