When planning to buy a home, it is a natural instinct to want to shop around for the best mortgage. The challenge is that too much shopping around for the best Ontario mortgages can actually harm your credit.
When purchasing a home you may approach your bank for mortgage financing. Even when applying for a pre-approval, they will ask for permission to obtain a credit report. Your realtor may also offer to get you a competitive mortgage pre-approval and they will also ask for permission to obtain your credit report. You may even decide to research mortgage interest rates and deals online and may choose to apply to another financial institution and at that time you will have to consent to having your credit report accessed.
When you provide consent to a financial institution, they will access your credit report on Equifax, Trans Union or both. Each time a financial institution accesses your credit report, an inquiry is reported to your credit report.
Inquiries directly affect your credit score. Too many inquiries will make it appear to a perspective lender as though you are a credit seeker or perhaps are having a credit problem. The problem is that the financial institution will only see the date and the name of the financial institution on the inquiry. They will not know what type of credit you applied for. If a financial institution sees several inquiries in one month, Royal Bank, BMO, TD Canada Trust and CIBC for example, for all they know, you have applied for credit cards. Should you be approved for unsecured credit by all of the companies who have requested inquiries, then you may be in a position to go into more debt than what your credit report reflects on the date that a lender requests your credit report.
The less inquiries you have on your credit report at the time you apply for an Ontario mortgage pre-approval, the better. Fewer inquiries are a sign of stability to a perspective lender and indicate that you are not a credit seeker. Too much shopping around for the best mortgage can actually harm your credit and your ability to get a mortgage altogether.
Generally, the credit score will be impacted based on the number of credit inquiries in the past 12 months. Usually any more than 4 inquiries in a 12 month period are considered a lot and will begin to impact your credit score. You can find out how many inquiries have been made to your credit report by requesting your credit report from Equifax and/or Trans union. Equifax’s data is most important because more lenders rely on Equifax data than Trans union.
One way to reduce the number of inquiries to your credit report when shopping around for the best Ontario mortgage is to deal with a Mortgage Broker. A good Mortgage Broker will work with all of the banks and will pull your credit report a single time, then submitting it to the banks to obtain a competitive mortgage pre-approval for you. Mortgage Brokers are also often paid by the banks, so in many cases you will not have to pay them a fee.