Can Shopping For a Mortgage Hurt Your Credit?
August 9, 1999, Reviewed July 16, 2009, January 13, 2011

"I have heard that if you solicit loans from many lenders who get credit reports on you, the lenders know that you are shopping around and won't take you seriously, hurting your chances for approval. Is this true?"

You are carrying around in your head an image of the lender as a flinty guy with a glass eye who does you an enormous favor when he makes a loan. This image has nothing to do with reality. Lenders want your loan, and the loan officer employees upon whom they depend to find loans are compensated almost entirely on a commission basis. If they don't close any loans, they don't have any income!

Loan officers ordinarily don't know whether or not you intend to shop unless you tell them. They cannot get this information from the credit agencies. If you do let them know you intend to shop, you categorize yourself as someone who is not going to be taken advantage of, which is all to your benefit. In contrast, if you let the loan officer know that you do not intend to shop, you categorize yourself as a potential dupe who they might be able to saddle with an "overage" -- a price higher than the price posted by the lender.

There is one way that extensive shopping that generates multiple credit inquiries could hurt you. Those who score credit view multiple credit inquiries as a negative indicator because consumers who keep making the rounds of lenders may be getting denials. On the other hand, multiple credit inquiries may simply mean that the consumer is shopping for the best deal, which should be viewed as a positive indicator. To reduce the chances of catching shoppers in their net, the credit scorers disregard inquiries made within 30 days of a credit score, and view inquiries within any 14-day period as a single inquiry. See Do Credit Inquiries Hurt Your Credit Score?

The moral: to protect your credit, get your mortgage shopping done within 14 days. Stretching it out is a bad idea in any case, since the market can change dramatically in a few days.
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