How Much Does a Mortgage Application Impact Your Credit Score?

Does applying for a mortgage affect your credit score? The simple answer is yes.

There’s no doubt that full-footprint credit searches can impact your credit score. However, when this happens, to what extent, and whether it poses an issue for you depends on several factors.

Your credit history plays a crucial role in mortgage eligibility, as many lenders use it to assess the level of risk involved in lending to you. The type of credit check a lender performs – whether a soft or hard search – can leave a footprint on your credit file, potentially affecting future applications.

At Online Mortgage Advisor, we often hear from customers concerned about how a mortgage application might impact their credit rating. If this is something keeping you up at night, rest assured – you’re in the right place.

This guide covers everything you need to know about the relationship between mortgage applications and credit scores. We’ll explain the different types of credit checks lenders use and how they affect your score. We will also provide expert advice for borrowers who have noticed a drop in their credit rating after applying for a mortgage.

Does a loan application affect your credit score?

If you apply for any credit, it can impact your credit score since most credible lenders will run a hard search against your credit history. These searches can negatively affect your credit score, and any application for credit stays on your file for a maximum of two years.

If you’re considering getting a mortgage soon, it’s wise to avoid applying for credit in the months ahead of making an application.

If you’re short on time and prefer to skip the reading and do some talking instead, call 0330 818 7026 or make an enquiry, and we’ll connect you with one of the specialist bad credit mortgage brokers we work with.

How mortgage applications impact on credit score

A lender might perform two types of credit checks when deciding whether to offer you a mortgage—soft searches and hard searches. The latter has a greater impact on the borrower’s credit score than the former, in some cases causing it to drop.

What is a soft credit search?

A soft search is a preliminary check that a lender may perform as an enquiry rather than an application. With your permission, this allows them to get some basic details about your credit history on which to base their lending decision.

The lender doesn’t always get full access to your entire credit history when carrying out this level of check, and most importantly, these searches are not visible to other prospective lenders who are granted access to your file. Only you can see them when you check your own credit history.

In the preliminary stages, many lenders will conduct a soft credit check for a mortgage application, typically to establish whether you’re eligible for an agreement in principle. This will leave what’s known as a “soft footprint” on your file and often doesn’t leave a mark on your credit rating.

Soft footprints can remain on your account for up to 24 months, but you can have an unlimited number of them against your name without it impacting adversely on your score.

Remember that not all lenders carry out soft searches as part of their application process, and some will leave a hard footprint (which we’ll get to in more detail shortly) if you give them permission to carry out a credit check.

If you’re unsure whether approaching a mortgage provider will hurt your credit score, get in touch. The expert advisors we work with will offer their insight into your application before pairing you with the right lender.

What is a hard credit search?

Some lenders don’t conduct a soft search and instead go straight in with a full “hard” search. When you formally apply for a mortgage, other lenders will conduct a full search after an initial soft search. It’s common practice for the lender to conduct a hard credit search at some point.

A hard credit search is a full review of your credit report and score, which gives the provider a clear picture of how risky you are as a customer.

The main difference between soft and hard searches is that other prospective lenders can see a hard check on your file, and although no result for that application is recorded, they will be able to guess whether you were accepted for the credit you applied for (if a new account hasn’t been taken after the search).

In the case of a mortgage application, hard search information usually remains on your file for 12 months.

Why you should avoid unnecessary hard searches

Making multiple requests for credit in a short space of time may have a bigger impact on your credit score. In the eyes of prospective lenders, it looks like you’re desperate for credit, or you can potentially appear as too much of a risk to their competitors to loan to.

This could mean that you’re either turned down for a mortgage by some lenders or offered unfavourable interest rates – and frustratingly, you might not realise this is the case until they’ve carried out hard checks of their own.

Thankfully, there are ways you can avoid unnecessary credit checks, and enquiring with us is one of them. The experts we work with will assess your application and pair you with the lender offering the best deals for someone in your situation.

How much credit checking does a mortgage application involve?

As we’ve mentioned, some mortgage providers will conduct a soft search to see whether you would qualify for a deal in principle. If you decide to press ahead and lodge a mortgage application based on this, expect the lender to carry out a full credit check and leave a hard footprint on your file.

Some lenders don’t conduct a soft search and will leave a full footprint when calculating your eligibility.

Mortgage checks track all addresses over 6 years

Lenders tend to want to review the full 6 years of your credit history when assessing your credit history and will do so against every address you have declared.

Mortgage checks also include aliases

If you have been known by any other name, lenders will want to know this, too, so they can reference you for any credit held in your previous name. If you have an account in another name, the reference agency will likely be able to pick this up, so again, it’s important to disclose everything from the start.

Will my credit score go down if I apply for a mortgage?

If you are declined for a mortgage, this will show up on your credit file and have the potential to harm it. That is why we recommend customers use an experienced mortgage broker like those we work with.

A broker with experience in successfully arranging mortgages for borrowers with diverse financial situations is well-placed to know the lenders most willing to lend to you.

Successfully getting a mortgage offer from your first application will prevent an unnecessary negative mark on your credit file, not to mention saving you a whole heap of time, hassle and angst.

Immediately after getting a mortgage, you should expect your credit rate to drop.

However, this is a temporary blip. As long as you meet your mortgage payments and maintain a stable financial picture by paying your household bills and other debt repayments on time, your credit score should normalise within 6 months.

What do you do if your credit score drops after a mortgage application?

First of all, don’t panic. There are two things to remember:

1. The good news is that this impact will be short-term: In fact, it will soon return to normal, if not improve over the next few months, as long as you avoid taking on any other hefty debts and, above all, make sure you keep up to date with any repayments, such as mortgages, loans, credit cards, and phone contracts etc.
2. Some lenders don’t take any notice of “credit score” or searches: These specialist lenders will look at your account conduct and the dates of late payments, defaults, CCJs, etc. These lenders tend to be the ones happy to consider people with credit issues, or complex income, and so are flexible when it comes to what they will and won’t accept, considering even recent issues, often with small deposits.

If you have been turned down for a mortgage because of your credit score, call 0330 818 7026 or enquire online. The advisors we work with will connect you with a broker who specialises in customers with low credit scores.