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How to Refinance Rate Shop Without Damaging Your Credit Score

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Do mortgage refinance rate quotes ding my credit score when shopping for a new home loan?

Are you shopping for the lowest refinance rates from today’s best mortgage lenders and are concerned how lender inquiries affect your credit score? If the refinance rate quotes you’re getting are higher than what lenders are advertising chances are your credit is the culprit. Here are several tips on shopping for the best refinance rates available without damaging your credit score in the process.

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Do Credit Inquires Affect Refinance Rates?

Everyone wants the lowest refinance rates when shopping for a new home loan; however, many homeowners worry about what mortgage lender inquires do to their credit. While it’s true that having mortgage lenders running your credit isn’t the same as having Macy’s run it, you don’t want creditors pulling your credit unnecessarily.

Credit inquires account for up to ten percent of your credit score in the category called new credit. New credit is bad because it raises your total debt liability. The more debt you have the more of a risk you are for lenders. Applying for new credit cards will drop your credit score because new debt increases the risk for everyone else on your credit report.

Not all credit inquiries are the same and fall into four general categories:

  1. Mortgage Related Inquires
  2. Car Loan Related Inquires
  3. General Credit Card Related Inquires
  4. Store Credit or Consumer Loan Related Inquires

Credit bureaus treat these four categories of inquires differently. Applying for a credit card for example is more damaging to your credit score than applying for a mortgage loan or worse yet that Macy’s store credit card. The reason is that credit cards revolve debt, increasing it over time where home and car loans generally don’t increase their balances over time.

That being said, mortgage lender inquiries can still drop your credit score by as much as five points.

According to FICO scoring, 65% of your credit score is based on your payment history. The next 15% is based on the length of time that you’ve had credit in you name. Your history of credit use is considered more important than what you might do with new debt, which is why inquires and new credit account for only 10% of your credit score.

Some Mortgage Brokers Tell You Not to Worry

While it’s true that having late payments or maxing out your credit cards will have a much more negative impact on your credit many mortgage brokers tell you not to worry about lender inquires. Having Mortgage lenders running your credit is estimated to lower your credit score by only five points. You can shop from multiple mortgage lenders with only one inquiry on your credit report. Unlike applying for multiple credit cards the bureaus know you’ll generally only be approved from one mortgage instead of five credit cards. This is why the credit bureaus allow refinance rate shopping without taking a huge hit to your credit score.

How to Get The Lowest Refinance Rates

If you want the lowest refinance rates from today’s best mortgage companies, shop around. Try to confine your shopping to a 14 day period to minimize the number of inquiries on your credit report. Formalize your quotes during this period by providing your social security number allowing lenders to run your credit. This will also make the process of locking in your refinance rates go more smoothly.

Staying on top of your credit score can mean the difference between saving a full point on your home loan or even having your application denied during underwriting. If you’re not sure what’s in your credit reports you should carefully review them for errors before applying for a mortgage loan at AnnualCreditReport.com.

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