If you’re ready to buy a home, you probably need to apply for a mortgage. In addition to a reliable source of income and savings for a down payment, you’ll also want to ensure your credit score is as high as possible and doesn’t include any mistakes.

Numerous factors can improve or hurt your credit rating, including multiple hard credit inquiries. What should homebuyers know about credit ratings and inquiries to ensure they can secure the best financing?

1. What’s the difference between a hard and a soft inquiry?

Each credit bureau (Equifax, Experian, and TransUnion) collects data and maintain files that financial institutions and other companies use to research your credit history.

Inquiries into your credit report can be “hard” or “soft.” What’s the difference? Soft inquiries can be made with or without your consent and don’t affect your score. For example, checking your own current credit score is considered a soft inquiry.

On the other hand, a hard inquiry occurs when you apply for a loan or a new credit card—and it can lower your credit score by a few points. However, lenders and creditors can not make hard inquiries without your permission.

2. Why are credit scores so important?

Credit scores matter because lenders use them to help determine if they’ll extend credit and how much to charge. So, people with higher scores usually find it easier to borrow money and may enjoy lower interest rates on mortgages, car loans, and other types of financing. 

For homebuyers, in particular, a lower credit score can significantly impact a home's cost.

Additionally, employers, insurance companies, and cell phone providers often look at credit reports before offering someone a job, an insurance policy, or a long-term contract. These are soft inquiries that won’t hurt your score but could impact decisions.

And those credit card offers that show up in your mailbox? They usually come from issuers who have run a soft inquiry on your credit report. If you want to stop receiving these offers, visit OptOutPrescreen.com or call 1-888-5-OPT-OUT.

3. What must I know about credit inquiries when buying a home?

Try not to do anything that could hurt your credit score while you’re securing a mortgage since a lower score could result in a higher interest rate or failure to get final approval on your mortgage.

For homebuyers, this often means delaying significant purchases on credit, like new furniture or appliances, since this will trigger a hard credit inquiry. 

4. Does that mean I should only apply for a mortgage with one provider?

No, it’s always good to shop around for the best rate and terms on your mortgage, and it shouldn’t hurt your credit score if you make all your applications in a short period (aim for less than 45 days). 

The credit bureaus recognize such activity as “rate shopping.” They’ll typically group hard inquiries from several mortgage lenders and report them as a single inquiry.

Your Accredited Buyer’s Representative is an excellent resource for all your home-buying questions, including the differences between mortgage providers and local lenders who other buyers have used successfully. But the final decision is always up to you.