Interest Rate Shopping -- Beware of impact to your credit score

Many savvy home buyers are very interested in getting the best rate on their future mortgage. After all the difference between a 5.25 and a 5.5% interest rate on a $200,000 loan can be as much as $500 per year or $42 per month. A wise home buyer certainly will contact a few Mortgage Companies to find the one with the best terms.

Unfortunately what many home buyers don’t know is that every time your credit report is pulled, it could and likely will lower your credit score temporarily. Most (all that I know of) lenders use this credit score to determine which rate class they are going to offer you. Hence before quoting you a rate, they want to pull your credit report to gain your credit score. If you contact 5 lenders and all five run your credit report, you will find that your credit score is adversely impacted.

So, how should you shop for the best rate?

1. Contact your first choice mortgage company and if you like them, authorizes them to pull your credit report. They will need your social security number. Tell them you want to know your credit score (the main scoring model is called Fair Isaac, FICO).

2. When you then contact other Mortgage Company, do NOT provide them with your social security number. Give them your FICO score instead and ask them for their rate.

3. Once you have called around and found the best rate, you can usually contact the first company you called and ask them to match it. If they can’t beat the first lender, you can then provide your Social Security number to the other Lender for them to guarantee their rate.

For individuals / couples who are on the borderline between different rate classes, this could mean the difference between securing the best rate and the next tier down.

As you shop for rates, there are many other things to consider including the fees, prepayment penalties and the flexibility of Local Lenders versus Internet based Lenders. Lastly, remember that until you lock an interest rate, it can change.

Shop for the best rate with your credit score not your social security number. Happy Hunting!

Written by James Boyer REALTOR, specializing in the Morristown NJ Real Estate,  Summit NJ Real Estate, & Chatham NJ Real Estate markets.  If you would like to take a look into what the towns of the Midtown Direct train line have to offer, take a look at Morristown Real Estate.