6 Ways To Shop Around for a Mortgage Without Lowering Your Credit Score

Are you ready to purchase a new home? Whether you’re a first-time homebuyer or a seasoned homeowner, you’ve probably done your share of research. You've probably heard the recommendation to compare mortgage rates before choosing a lender. Decreasing your rate by as little as 0.125% can save thousands of dollars—maybe even tens of thousands, depending on the size of your loan.

That’s why it is crucial to compare mortgage offers carefully—but how can you shop around without hurting your credit score?

Let’s take a closer look at how to make it work.

1. Check your credit report. This not only helps you understand what is being reported, but it also gives you an opportunity to proactively fix any errors. If you're a Mountain America member, visit Credit Score Plus to check your credit score, view your credit report, run score simulations and view credit alerts—all for free—using the mobile app or online banking. If you're not a member yet, just head to annualcreditreport.com. You are entitled to one free credit report every year from each of the three main credit bureaus.

2. Pay your credit card debt down. When deciding whether to approve a mortgage, lenders pay strict attention to utilization rate—how much of your total credit you’re currently using. That’s why it’s a good idea to pay down outstanding balances as much as possible before applying. The more you pay off, reducing your utilization rate, the higher your credit score will be. The higher your credit score, the better chance you have of qualifying for a lower interest rate.

3. Get prequalified. You’ve probably heard the terms “prequalified” and “preapproved.” What's the difference? A prequalification is a preliminary estimate based on basic information, while a preapproval is a more in-depth process that involves verifying financial information and credit history. So aside from taking less time and requiring less documentation, prequalification results only in a soft inquiry on your credit. It’s a way to prescreen your credit score without lowering it. While the amount you are prequalified for is only an estimate, it is a helpful guide to understand how much home you can afford.

4. Shop within a short window. Consumers have 14–45 days to comparison shop without damage to their credit. According to the Consumer Financial Protection Bureau, multiple credit checks during this time will be recorded as one inquiry, resulting in a minimal credit score dip.

   So, how do you know exactly how long you have? It comes down to which credit scoring model the individual lender is using—newer models give consumers up to 45 days. But, if your lender is using an older scoring model, you may only have 14 days. It will take some dedication, but if you’re ready to make the jump into a new home, you should be able to get your mortgage shopping done well within two weeks.

5. Avoid mortgage shopping past 45 days. If your circumstances take you beyond 45 days, your credit score could be lowered more than once, but the negative effect of an additional inquiry should be minimal. Overall, your savings from securing a lower mortgage rate will outweigh any short-term impact to your credit score.

   Bottom line: do your best to shop quickly.

6. Put the brakes on borrowing other money. A riskier move while mortgage shopping is applying for new credit such as an auto loan or credit card. If you have other needs, take a look at your finances and prioritize. Depending on your situation, you may want to put a new home on hold for six months or so. Or, if you want a new car but it's not a necessity right now, wait until you have those house keys in your hands before you go car shopping!

Securing a mortgage is an exciting step in your journey to homeownership. When you understand how comparing mortgage rates can affect your credit score, you can take steps to mitigate the risks and avoid setbacks along the way.