Will Shopping for a Mortgage Hurt my Credit?

Worried about how many times you’ve hit that?  Your credit bureau, I mean.  A lot of emphasis is put on those three little digits, but if it’s hits while you are shopping for a mortgage then I say don’t stress.

While it makes sense to limit ‘hard hits’ (those that do a full credit check and influence your score) there are situations where a credit pull is going to be inevitable.  Applying for a student loan or car loan?  Buying that first home or an investment property? Checking out a new cell phone plan or setting up a utility account?  Your landlord may even require a copy of a recent bureau if you’re looking for a new place to live.

You can check your own credit directly with the bureaus (Equifax and TransUnion) and it’s considered a ‘soft hit’ (soft in that it has no influence on your score).

If the number of hits is reasonable and can be readily explained I don’t see an issue, because in my almost 20 years of banking I’ve never seen reasonable credit inquiries, in isolation, been a reason for a decline. 

However, if you’re applying for a lot of consumer credit (store cards, consumer loans, credit card limit increases, etc) then it can be a potential sign to lenders that you’re headed toward financial trouble. 

And with respect to mortgages, there is an exception to hard hits where within a window ranging from 14 to 45-days (varies depending on the credit scoring model used), multiple credit checks from mortgage lenders are recorded on your credit report as one single inquiry. This is because it is recognized that you are only going to buy one home, and this allows you to check different lenders to find the best loan terms for you.

There is lots of great information on the bureaus websites (www.equifax.ca or www.transunion.ca ) if you want to learn more about what affects your score.  Equifax even gives a breakdown as to what impacts the score as follows:

Payment history (i.e. are you paying on time)

35%

Used credit vs available credit (i.e. how close to your limits)

30%

Credit history (i.e. How long you’ve had credit accts)

15%

Public records (i.e. Bankruptcy, collection items, etc.)

10%

Inquiries

10%

Total

100%

Remember in class when you’d check out how much each assignment was worth as a percentage of your mark and prioritize from there?  Well, keep in perspective that inquiries as a percentage of how your credit score is made up comes in dead last at 10%. 

In short - it all comes down to common sense.  Don’t go cray cray with applying for credit and limit inquiries for when you need them, but also don’t limit yourself because of them.  Maybe in the last six months you moved across the country and opened a new bank account, signed a new lease, signed up for hydro, purchased a new cell phone and a new car.  This could have been five hard hits right there, which yes, will likely have some impact on your credit score.  But score alone is just a number and if you pay everything on time, manage your balances responsibly and aren’t holding an exorbitant number of credit accounts then my take is, who cares?  You shouldn’t let the thought of those five hard hits prevent you from moving forward with a mortgage application, because at the end of the day it’s all #life and we can’t always control the order in which things come at us.

Questions?  Let’s talk.