How shopping for lenders affects your credit score

As a savvy consumer, you shop around for products. You compare prices online and maybe visit several stores before making a large purchase.

Well, few purchases are larger than a home. So, should you shop around for a lender? Or will multiple lenders pulling your credit harm your score?

The type of credit matters

It’s true that applying for several credit cards will hurt your credit score, but credit bureaus treat mortgage debt different from credit-card debt. Mortgage debt gets lower as time passes—plus, a lender has the house as collateral. Credit-card debt usually ends up going up as time goes on.

Unlike credit cards, several inquiries for a mortgage loan doesn’t mean you’re trying to secure several mortgages. Credit bureaus realize that consumers try to obtain the best deal possible, and that results in multiple credit inquiries.

What does FICO say?

The formula used by FICO, which is the type of score most lenders use, ignores credit inquiries that are less than 30 days old. Even though inquiries older than 30 days may be looked at, multiple inquiries from mortgage lenders made within 45 days of each other are treated as one inquiry.

The bottom line

Credit bureaus know that a mortgage loan is a huge commitment. You can submit multiple applications to try for the terms that benefit you best without damaging your credit score. However, there’s a point where hunting for the best deal could begin to harm your credit.

Most lenders will offer similar loan products to similar borrowers. After a few inquiries, talk to the lender who meets your needs and work on a mortgage that’s best for you. Treat any outliers with suspicion—such as a rate that’s far better than the others you’re offered. If something looks too good to be true, it probably is.