Understanding how many times your credit is checked for a mortgage application
Learn more about credit checks before starting your home search, so you know what to expect during the buying process.
Here’s what happens when a mortgage lender checks your credit
First, let’s review what a “credit check” means. It refers to the act of pulling your credit report to assess your financial history and behavior. A credit check can either be a soft or hard inquiry on your credit report.
When you or someone else checks your credit report but doesn’t submit a new application for credit, it’s considered a soft inquiry or “soft pull.” Examples include employers checking on potential new hires or credit card companies looking for pre-qualified customers. However, when you actively apply for a new line of credit, such as a credit card, home or auto loan, the lender requests your credit report. Your credit score and the financial information on your credit report can determine approval, as well as the terms of your loan. This credit check is considered a hard inquiry or “hard pull.”
Hard inquiries are a necessary part of applying for a mortgage and can’t be avoided. However, the Consumer Financial Protection Bureau (CFPB) has regulated that, “Within a 45-day window, multiple credit checks from mortgage lenders are recorded on your credit report as a single inquiry. This is because other creditors realize that you are only going to buy one home.” The CFPB also assures consumers that “a single credit inquiry from a lender will have little impact on your credit score.”
Number of times mortgage companies check your credit
Guild may check your credit up to three times during the loan process.
- 1. Initial pre-approval credit check
Your credit is checked first during pre-approval. Once you give your loan officer consent, credit is pulled at the beginning of the transaction to get pre-qualified for a specific type of loan. To determine whether or not you qualify for a mortgage, an underwriter must evaluate your credit and look at your earnings, debt and savings. Then, you’ll receive pre-approval in the form of a written and signed letter. With this, you can confidently start shopping for your home.
- 2. Credit check after 120 days
Your credit may need to be pulled again if your credit report is over 120 days old or if you’ve paid off debt and improved your credit score.
- 3. Final credit check at closing
At the time of closing, some loan programs require a pre-close credit report to ensure no new debt has been established. If transactions on your report raise questions, you may need to explain what you’ve done to address them.
3 steps to take before your credit is checked
By understanding your credit score and taking steps to improve it, you can be better prepared for mortgage pre-approval.
- 1. Understand your credit score
Mortgage lenders will check your credit score when you start the pre-approval process for a home loan. So you should know what your credit score is before applying. Checking your own credit doesn’t affect your score. To find your score, take advantage of the free report available once per year from each credit bureau.
- 2. Check your credit report for errors
Your credit report and subsequent score are used to calculate your interest rate. Errors can reduce your score. It’s a good idea to correct those before applying for pre-approval. Fact check your report to look for inaccuracies, including names, accounts or addresses you don’t recognize. If you find incorrect information, annualcreditreport.com recommends contacting “the business that issued the account or the credit reporting company that issued the report.”
- 3. Avoid red flags
Between your pre-approval credit check and closing credit check, be conscious of red flags that can affect your mortgage approval:
- Resist the temptation to start making big purchases for your new home. Not only can large purchases increase your debt-to-income ratio, but you also risk overdraft, which can affect mortgage approval.
- Opening several new accounts is a red flag of risk because it can indicate you’re on a spending spree opening multiple lines of credit.
- Make your payments on time, every time. If you’ve missed payments, do your best to get current and stay current. From pre-approval to closing, Guild Mortgage advisors are here to guide you through your homebuying journey. Connect with an experienced loan officer today.
From pre-approval to closing, Guild Mortgage advisors are here to guide you through your homebuying journey. Connect with an experienced loan officer today.
The above information is for educational purposes only. All information, loan programs and interest rates are subject to change without notice. All loans subject to underwriter approval. Terms and conditions apply. Always consult an accountant or tax advisor for full eligibility requirements on tax deduction.