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Liz Weston: Looking for a mortgage? Your credit score may take a toll

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Dear Liz: We are trying to refinance a mortgage. All mortgage lenders say that checking our credit scores will not affect the scores. However, this is not true. Which give? The three credit bureaus all list “too many inquiries” and penalize us. Does calling them do any good or make it worse?

Reply: Checking your own scores is considered a soft inquiry which has no effect on your scores. When a lender checks your scores, there might be a little ding, but credit scoring formulas also have a feature that reduces the effect when shopping for a mortgage.

Essentially, all mortgage applications made within a certain period of time are grouped together and counted as one. In addition, the formulas ignore any mortgage application made within the previous 30 days. The length of time you can shop varies depending on the credit scoring formula, so it’s usually a good idea to focus your shopping on a two-week period.

What you don’t want to do when looking for a mortgage is apply for another loan. These applications are not combined with your mortgage loan applications. The effect of these requests wears off quickly and is usually quite small – typically 5 points or less for FICO scores, for example. But even a small swipe could make you pay more interest if your scores aren’t already great.

Liz Weston, Certified Financial Planner, is a personal finance columnist for NerdWallet. Questions can be directed to him at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the “Contact” form at asklizweston.com.


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