How To Shop For Credit Without Hurting Your Score

You have been dreaming of homeownership since you were a kid- the day when you would finally have your own four walls that you can do whatever you want with. A garage to put your own car in, a yard for your own dog. And now, as an adult, you are thinking more seriously about how to make that dream happen. You know from doing some research and talking to friends and family who have also purchased, that your credit score will be a large factor in your home buying experience. While you know you need good credit, how are you supposed to shop around without bringing your score down further with multiple credit checks?

Let’s start with a little background. What is credit? A credit score is a 3 digit number used by lending institutions to decide your loan-worthiness, or in other words, how much of a risk you pose as someone to lend money to. The higher your credit score, the more responsible your financial behaviors appear, and the more likely a lender is willing to give you credit (or a loan). Your credit score will also help determine not only your eligibility but also your interest rate. Having good credit doesn’t always help get great rates (many credit cards are high regardless of how great your credit is), but with a home loan, it definitely helps if you are in top tier credit.

Let’s start with a little background.

What is credit?

A credit score is a 3 digit number used by lending institutions to decide your loan-worthiness, or in other words, how much of a risk you pose as someone to lend money to. The higher your credit score, the more responsible your financial behaviors appear, and the more likely a lender is willing to give you credit (or a loan). Your credit score will also help determine not only your eligibility but also your interest rate. Having good credit doesn’t always help get great rates (many credit cards are high regardless of how great your credit is), but with a home loan, it definitely helps if you are in top tier credit.

How is a credit score important to buying a home?

Most people are not in a position to buy a home with cash outright from the get-go. When buying a home, you will need to qualify for a loan, and while it may be possible to find a home loan without having credit, it is not likely. In order to obtain a more traditional home loan, you will have to exercise to the bank that you have the ability and responsibility to pay it back. The bank will use your credit score among other factors to make that determination.

Where do I start?

Before having your credit run or turning in an application, it may be wise to check on your own credit score to see where you may fall in the range. Some credit cards will have a credit tracking feature built into their “perks” where you can check on your credit score and also check for any discrepancies without affecting your credit. Websites like Credit Karma may also help, however, you will not want to rely solely on these scores as they can be somewhat inaccurate. The most accurate score you will receive will be when you run your application with a lender, however, if you run your credit too many times, this could come back to affect your score.

How to avoid having your credit run by lenders?

Use the number you obtained from the free (and non-credit-affecting) source mentioned earlier and provide it in your conversations with lenders. A lender should be able to tell you from a single conversation whether they think you may qualify and for approximately how much without running your credit. If you provide your income, credit score, and monthly debts listed on your credit report, they should be able to give you a general idea of what you can do. After deciding on a lender that you feel comfortable with, you will then want to go through the whole application process, allowing them to run your credit so they can give you exact numbers and a preapproval. Most lenders will not give you an official pre-approval without first running your credit.

Remember to check your credit report for accuracy, as some mistakes or fraudulent activity can have a devastating effect. You will want to deal with any of those issues before the time clock starts on escrow. Stay vigilant, decide on a lender before letting multiple sources run your credit, and keep moving forward! You’ll be in your own home before you know it.