We all know that if you apply for multiple charge cards in a very short amount of time, your credit score will take a hit because of the many credit inquiries by the various banks. So, you may have also heard that if you shop multiple lenders for mortgages, the same will be true: your credit score will crater.
But that’s a “popular myth,” Richard Cordray, the Consumer Financial Protection Bureau (CFPB) director told Congress earlier this year.
Worse, it’s a myth that can cost you thousands of dollars in your mortgage by stopping you from shopping lenders, which is why Cordray urged potential homeowners to shop at least three lenders for their mortgage.
Could you be saving
thousands of dollars?
“You can shop around and even submit multiple applications to obtain multiple initial estimates,” he said. “The effect on your credit will be the same no matter how many lenders you consult.”
That’s because the type of credit you apply for matters. A lot. Credit bureaus don’t look at mortgage debt the same way they look at credit card or other types of debt.
For instance, credit card or store card debt is considered “bad,” while mortgage debt is considered “good.” Why? Because credit card debt tends to get higher over time, while a mortgage debt gets lower. There’s also a little thing called a house backing up that mortgage debt.
Further, unlike applying for multiple credit or store cards, multiple inquiries for the best mortgage doesn’t imply that you are trying to open many mortgage accounts. It’s obvious that you are shopping for the best deal, a move that credit bureaus actually like: they know that prudent, responsible borrowers are more likely to pay creditors back.
With multiple credit cards, however, there’s always the possibility you’re planning to charge a one-way ticket to the Cayman Islands – or at least go hog wild at Target.
So, as long as you shop mortgage lenders within a 14-day window, FICO, the score lenders use, will only consider it one credit inquiry, meaning minimal effect on your credit score (estimates are a five point drop in your FICO score, which has a scale of 300-850).
How to Shop and Save
Fortunately, you don’t have to run all over town filling out stacks of loan applications to get multiple, competitive mortgage offers.
Are you leaving
$24,000 on the table?
LendingTree, one of the nation’s most respected mortgage comparison websites, is a free service that connects you with up to five different lenders. Those lenders compete to win your business by giving you the best rate and terms. You win by getting those best rate and terms. In fact, a study conducted by LendingTree found that shoppers who compared five different mortgage offers could save $24,000 over the life of their loan.
That’s one costly myth.