It’s easy to be confused about how credit checks work when you’re buying a house. As you know by now, getting pre-approved for a mortgage takes several steps. Most likely, you’ll talk to several lenders during the process to ensure you’re getting the best rate.


In order to get a quote from these lenders, you’ll need to undergo a credit check. How will this affect your credit score? Will it impact your other mortgage applications? What can you do to minimize the effects of these credit inquiries? Here’s a guide to this process and how many credit checks you should allow before you choose a home to buy. 



The Basics of Credit

First, let’s break down exactly what a credit check is. When a company, such as a mortgage lender, pulls up your credit report, this contains vital information. Within your credit report is your credit account history, past payment information, and active lines of credit. 


These reports are compiled by reporting agencies also known as credit bureaus. Your score is calculated using a mathematical formula called a scoring model. This is how lenders predict whether or not you’re able to repay the loan on time. 


You have a few options for checking your own credit score. You can check with your credit card company to see if they have any free tools like Credit Karma. Most have some kind of partnership which allows you to see a credit score estimate for free without any inquiries listing on your official report. You’re also entitled to a free copy of your credit report once a year from one of the major credit reporting companies: Equifax, Transunion, and Experian. 



Credit and Mortgage Rates

Credit scores and mortgage rates are closely related. The higher your score, the better deal you’ll get on a mortgage. Even a few points difference can lead to a significant change in your rate. Many home buyers fear the pre-approval process will ding their credit. 


Every time you apply for a line of credit, this is known as a credit inquiry. Having too many of these at once will actually hurt your credit. Too many inquiries make you look like a high risk to lenders, but this is trickier when it comes to mortgages. 


Credit bureaus are smart. They’ve realized that buying a home is not the same as trying to open 10 credit cards. Mortgage shopping does not carry this same level of risk as other types of credit shopping. Because of this, as long as you shop for mortgages within a limited period of time, this is only treated as a single inquiry. This period of time can be anywhere from 14 to 45 days. 


Yes, you will see a hit to your credit. Credit pulls for mortgage loans are generally a 5 point hit to your credit score. However, there are other important factors that matter much more as your debt to income ratio and your payment history. 



Shop Around for Mortgage Rates

Ultimately, you shouldn’t be afraid of shopping around for a mortgage rate that fits your budget. As long as you’re working within that 14 to 45 day limited time period, you don’t need to worry about how many credit checks you have when buying a home. 


That being said, this only applies to mortgage credit checks. Avoid applying for any outside lines of credit during this home shopping process, whether you plan to open a credit card or apply for an auto loan. Save all of that until after you’ve closed on your new home. 


In the meantime, feel confident shopping around for a mortgage lender. You shouldn’t see any significant impact on your credit as long as you follow the tips above.