Does Rate Shopping Affect Credit Score?

A client posed this question below in an email to me yesterday morning.

“Is our credit ‘dinged’ every time we apply with someone? I remember the days when we were. I mean, if B of A wants us to apply with them, and [we want to consider] HomePath loans – there’s at least 2 different mortgage companies we need to send applications to. Will that affect our credit?”

First, this is a very common question from home buyers, so if you’ve wondered the same thing, you are in good company.

Second, see here for a list of HomePath mortgage lenders. Currently, there are about 30 in the state of Arizona who offer this low down payment financing option.

Now, no one will ever be able to tell you, definitively, how much a particular event like a credit inquiry (or short sale, or foreclosure, etc.) will affect your credit score. The fact is the impact from submitting a credit application varies from person to person, depending on the number of accounts a borrower has open and the length of the individual’s credit history, among other things.

What I can do is share with you several articles from some of the most popular finance-related websites.

This following excerpt comes from Experian’s website:

Q: Will I be penalized for shopping around for the best interest rate?

A: Too many inquiries may have a negative impact on your credit score. However, most recently developed credit scores recognize when a consumer is shopping for the best rates and either ignore multiple inquiries or count them as only one inquiry if they occur within a specific period of time. In such cases, shopping around will have little or no impact on a credit score.

Experian is just one of the big three credit bureaus, though. Let’s see what DoughRoller and myFICO have said about “rate shopping.”

The advice in both articles seems to be about the same. myFICO says, “For most people, one additional credit inquiry will take less than five points off their FICO score.” Both suggest that, if your credit score drops after submitting multiple applications for a mortgage, “it probably won’t drop by much.”

If you are reading this post because you’re shopping for a new mortgage or home, too, give me a call or send me an email so we can talk more specifically about your situation.

Image Credit: Lotus Head on Wikipedia.

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About Doug Hill

Doug Hill is an Associate Broker with Coldwell Banker Residential Brokerage, and founded The Hill Group with his wife, Kirsten in 2003. Combined, they have helped over 1,000+ clients buy and sell homes in the Phoenix Metropolitan Area. Doug holds a Bachelor's Degree in Business Management & Economics, and is a Navy veteran. He is an active member of the Southeast Valley Regional Association of Realtors on their Professional Standards Board, and he and his wife have had the #1 team for Coldwell Banker in Arizona for multiple years in a row. He loves to read, travel, and spend time with his family and friends.
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