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Interest Rate Shopping & Credit Scores

December 12, 2022 By: Great Midwest Bank
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At Great Midwest Bank, one of the most frequent questions about credit scores pertains to multiple inquiries. Those shopping for a mortgage are often hesitant to apply with multiple lenders for fear of seeing their credit score fall.

If you’re in that boat, don’t worry. We’re here to explain it all and offer tips to help protect your credit score while looking for a home loan.

Background on Inquiries

When you apply for a loan, the lender will run an inquiry on your credit history — known as a “hard inquiry.” When these credit checks are run, they get reported as part of your credit footprint and may shave a few points off your credit score.

There are also “soft inquiries,” which are when you check your own credit score, a potential employer checks it as part of a background check, or a credit company checks your credit to pre-qualify you. Soft credit inquiries do not count against your credit, as they are seen as a more routine credit check.

The mortgage loan preapproval process also uses a soft inquiry, so getting preapproved at multiple financial institutions will not negatively impact your credit score.

Closer Look at Hard Inquiries

What is the deal with hard inquiries, then? You may have been diligent with paying off your bills, loans — the whole nine yards — and worked hard to build up your credit score to where it is today. It feels, well, kind of unfair that your score can be negatively affected when you’re simply trying to find your best loan options.

To better understand, we have to take a look at the “why” behind the relationship between hard inquiries and credit scores.

Having lots of hard inquiries in succession within a certain timeframe can make a borrower appear risky to lenders. That’s because the inquiries present an element of uncertainty. What’s the reason behind the inquiries? Are all these inquiries due to the borrower lacking financial stability?

Hard Inquiry Examples

Someone may rack up lots of hard inquiries if they apply for several different credit cards one after the other. Another person could also have many hard inquiries conducted if they apply for loans with a variety of lenders over a long period of time to explore their options.

Regardless of the reason behind the hard inquiries, they’re simply seen as a risk factor for the lender — which translates to losing points on one’s credit score.

Set Yourself up for Success When Interest Rate Shopping

Unfortunately, hard inquiries are all lumped into one basket, without context. That means you should be strategic and mindful about activities that lead to hard inquiries.

On average, a hard inquiry tends to lower your credit score by 5–10 points. So, what can you do to protect your credit score while you pursue a mortgage loan?

Know Your Credit and Lending Outlook

Before diving into applying for loans, get to know where your credit score stands and how likely you are to be approved for the loan amount you seek. This is where the soft inquiry is your friend. Check your own credit score as often as you like — the soft inquiries will not hurt it.

It is also wise to wait to apply for loans until you feel confident about meeting approval requirements. The last thing you want is to lose credit score points from hard inquiries and walk away without approval for your loan.

If you’re unsure where exactly to start, don’t be afraid to talk to a loan officer. The loan officers at Great Midwest Bank can help answer any questions you may have and discuss qualifications for loans — including how to improve your credit score. We also have CRA (Community Reinvestment Act) loan officers on staff who specifically work to ensure everyone has equal opportunities and resources to pursue their dreams of buying a home.

Our CRA loan officers empower the local Wisconsin community’s homeownership goals.

Limit Your Application Window

The three major credit bureaus — TransUnion, Equifax and Experian — provide you with a 30-day window in which to shop for a mortgage loan without having your score negatively affected. In this window, multiple inquiries are treated as a single inquiry. In fact, most lenders use a tri-merged report, including scores for TransUnion, Equifax and Experian.

Therefore, if you can limit your loan application window to that 30-day period you will not take a hit to your credit score for every hard inquiry in that timeframe. On the other hand, if you decide to apply for different loans over the course of several months you are likely to lose points from your score for each of those hard inquiries.

Keep up with Good Credit Practices

While looking for a loan, remember that your credit score is always being impacted. It’s important to keep paying attention to your score and working to maintain it and improve it. While you can’t control the fact that you’ll have at least one hard inquiry in your loan search, you can and should stick with healthy credit habits.

Applying for a few credit cards when you’re seeking a mortgage loan wouldn’t be a great choice, for example. Unlike mortgage loan applications, there is not a grace period for credit card shopping — so you’d find yourself with multiple hard inquiries in short order.

Still working to establish your credit foundation? Explore some of our tips for building credit.

Shopping for a loan?

When you’re shopping for a loan, think about exploring your options at your local Great Midwest Bank. At GMB we offer flexible loan options, personalized service and access to help whenever you need it. Head over to our website to apply for a loan, or stop in to talk to a neighborhood loan officer. We aim to make the process as easy and stress-free as possible so you can experience a state of Bankquility. Talk to us today!

This article was originally published in November 2012. It was most recently updated in December 2022.