How to shop for a mortgage without hurting your credit

Your credit score is one of the most important indicators of your financial health, which is why lenders use it to determine your creditworthiness whenever you submit an application to borrow money. It’s inevitable that your credit score will fluctuate over time as you take on, apply for and pay off more debt, and it sometimes takes a little time for it to recover from bigger dips.

If you think you’ll be applying for a mortgage anytime soon, you might want to take some extra steps to ensure your credit score doesn’t take too much of a hit throughout the homebuying process.

Note that you should avoid applying for other new lines of credit at the same time you’re shopping for a mortgage. Opening too many new lines of credit simultaneously can cause your credit score to decrease — and when you’re applying for a mortgage, you’ll want it to be as high as you can get it since your credit score is what will determine the interest rate you’ll get locked into for 15 or more years.

Paying down existing debt can also help to improve your credit score before you start reaching out to lenders. Depending on what your credit score currently is, an increase by even just a few points could potentially be good enough to push you into a better credit score range, which can land you better terms on your mortgage.

If you’re about to begin your mortgage search, be aware that applying with a credit score that’s in a healthy range will improve your chances of getting approved. While there may be some lenders that cater to those with lower credit scores, such as Rocket Mortgage, keep in mind that this three-digit number can not only get you in the door for a mortgage but also influence the interest rate you’ll end up paying — and the higher your credit score is, the lower your interest rate will be.

It’s also important to make sure the lenders you’re interested in will accept your credit score, as most lenders will typically require a score of at least 620. For jumbo loans, credit score requirements may be even higher.

Knowing what your current credit score is can help you avoid applying for a loan with higher credit score requirements, which would only lead to rejection. Of course, to improve your chances of getting approval from your desired lenders — and to improve your chances of locking in a lower interest rate — you can always hold off on the homebuying process and work on increasing your credit score first.

You’ll also want to keep an eye on your credit report so you can spot any errors that could result in you reporting negative information to lenders on your applications.

Getting pre-qualified for a mortgage means you’re receiving an estimate of how much money you might be able to borrow to buy your home. The lender will usually run a soft inquiry on your credit report and your credit score will not be impacted.

While pre-qualification is a less rigorous analysis compared to pre-approval, it can still offer a ballpark estimate of your loan amount so you can at least tell which homes will be most affordable for your budget. Because your credit score won’t be impacted by pre-qualification, you should really try to get pre-qualified through as many lenders as you can to see how much you’ll likely be offered by each.

Of course, you should still be strategic about which lenders you seek pre-qualification from. For example, if you’re already planning to make a large down payment, it could be prudent to consider those that charge fewer lender fees or no lender fees at all, such as Ally Bank. These types of additional fees can quickly add up and will have to be made along with the money you’ll pay upfront for your home, so saving when you can is a smart move.

Keep in mind that you will eventually need to get pre-approved for your home loan. While pre-qualification is an early step you can take sooner in your homebuying process, it still isn’t a substitute for pre-approval.

Generally, every time you apply for a new line of credit, a lender runs a hard inquiry and your credit score may temporarily be lowered. Because of this, submitting too many applications for new credit can damage your credit score since you’ll be seen as a riskier borrower.

When it comes to mortgages, however, lenders expect you to shop around and you can do so as much as you need to within 45 days of getting your first hard inquiry without harming your credit score further.

This is where it can be handy to go in with the knowledge gained from already being pre-qualified and aware of which lenders will most likely fit your financial needs. That way, you won’t have to waste valuable time during the 45-day window doing too much additional research for new lenders.

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