It’s not a secret that a credit check will impact your score, but is this something that you should be worrying about when applying for a mortgage? Let’s look into this a bit further to give you a better idea of how much of an impact a check will have on your credit score.

 

Soft and Hard Credit Checks

There are two different types of credit checks. Hard checks, which will affect your score, and soft checks, which do not.

A soft check is when a financial institution checks your credit for reference purposes. This would only be done by institutions that you already have accounts with. An example might be if your bank wants to present you with a promotional credit card offer. They do not need your permission to do a soft check. A soft credit check will not show up on your credit bureau, nor will it have any impact on your score.

Anytime you check your own credit, this would also be considered a soft check.

Soft checks do not come at times when you are applying for credit. If you are applying for credit of any kind, mortgages included, then it will be a hard credit check. Every single time.

 

How A Hard Credit Check Impacts Your Score

Your credit score is made up of a variety of different components, one of which is credit checks and new credit. This represents only 10% of the credit score. Any score over 700 is considered excellent. The maximum possible score is 900, so this leaves a pretty big window. While you would think a 900 credit score would get you a better deal, or special privileges, this is not the case at all.

You either qualify for the mortgage on credit or you don’t.

The borrower with the 900 credit score will get the exact same offer as the person with the 700 credit score. In most cases, even a 650 credit score or even a bit lower will still get you the same rate. Even with scores as low as 600, you may still be eligible for the lowest mortgage rates, but it would be considered on a case by case basis. If you have a score in the low 600s, a lender would not be analyzing it to determine which rate you would get. They would be analyzing it to determine if they want to approve your mortgage or decline it. There is no in between.

The exact effect a check has on your score can vary depending on your overall credit portfolio. For those with healthy credit, the effect of a hard credit check is generally quite minimal, and usually not more than a few points. If you have a score of 750, and if your score were to drop to 747, then this would be quite meaningless.

Your credit score fluctuates regularly, check or no check. You can have a hard credit check and yet your score can still increase. For example, you may have a credit check, which drops your score. But if you just paid off a debt, then this could potentially elevate your score. It’s a complex algorithm known only to the credit reporting agencies (Equifax and Transunion) and can vary from person to person.

 

Multiple Hard Credit Checks And Their Effect On Your Score

What many people do not know is that you can have as many credit checks as you like within a 45 day period, as long as they are all for the purpose of applying for a mortgage. Even if you had ten credit checks, it would still only count as a single check towards your score.

Each check would however get listed on your credit bureau, so any lender or broker checking your credit will see the list of previous credit checks.

Even though additional credit checks do not affect your score, there is generally no need to have multiple brokers or financial institutions checking your credit. If you are simply shopping around for a mortgage rate, you shouldn’t need to put in an application and have your credit checked to get this information. Any quality mortgage professional will be able to let you know the rate you can expect, without having to go through this process. Assuming qualifying credit of course.

 

Credit Score Is Only One Component Of Your Credit Bureau

There is a lot more to a credit bureau then just your score. While your score is the first thing a lender will look at, they will also scrutinize the rest of your credit bureau as well.

As mentioned above, someone with a credit score in the low 600s may still be eligible for the lowest mortgage rates, depending on the information reporting on the bureau. While one may qualify, another applicant with the exact same score might be declined. The same applies with a high credit score. You can have a great credit score and still be declined on credit, based on the information reporting on the credit bureau. In this case, it may not be so much as what is reporting, but what isn’t reporting. Having too little credit may sometimes result in a great credit score, but it may not be enough for adequately demonstrate credit worthiness in the eyes of the lender, which could end up resulting in a decline… even if your score was a perfect 900.

 

How To Ensure Your Credit Is Strong

I generally suggest having a minimum of two pieces of revolving credit, such as a credit card or a line of credit. The limit should be a minimum of $1,500 on each credit account. It’s also a good idea to use your credit cards periodically, at least two to three times per year. Even if you are just putting $10 on it and then paying it off when your bill comes in the next month. Just like going to the gym, credit needs to be exercised as well. If you were to keep all your credit dormant for over a year, then this would also weaken your credit and could result in approval issues, even though your score may still be in the 700 range.