Reader Question: Will shopping for a mortgage hurt my credit score?

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June 23rd, 2008 - Posted by Joe

Q: Is it true that shopping around for different mortgage offers will lower my credit score?

A: Many people believe that shopping around for mortgages, home loans or auto loans can negatively impact their credit score because it requires authorizing multiple lenders to pull your credit file. This is not necessarily the case according to the Fair Isaac Corporation, the makers of the FICO credit score which most financial institutions use to make lending decisions.

The FICO score is specially calibrated to take into account the fact that most people will shop around for the best deal when they are securing a loan for a major purchase. Here is how Fair Isaac explains the impact of "rate shopping" on your FICO score:

Looking for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though youre only looking for one loan. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won't affect your score while you're rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

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