Loan Shopping and Your Credit Score

MAR 02, 2012

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When financing big ticket items like a home or a car, loan shopping can help you find the best rates and options before striking a deal. However, you may be worried that multiple credit inquiries may send your credit score into a nose dive. Before you settle for the first loan you come across, learn more about loan shopping and your credit score to minimize the impact these credit inquiries can have.

Credit Inquiries and Your Credit Score

When you apply for a loan or line of credit, a credit inquiry will be added to your credit report. This happens because the lender or creditor is checking your credit report and credit score to determine your risk factor when paying back the money you borrow. These credit checks are recorded as hard inquiries, and have a negative impact on your credit score.

Compare Mortgage Loan and Car Loan Rates within a Short Period

Although inquiries for mortgage loans and car loans are still marked as a hard inquiry, credit scoring models take certain inquiries – and the circumstances behind them – into account when calculating your three-digit number. Credit score calculations take the fact into consideration that you are likely to go loan shopping for the best rates, creating multiple credit inquiries on your credit report. That’s why car loan and mortgage loan queries within a 14-day period count only as one inquiry when it comes to calculating your credit score.

Loan Shopping Inquiries on Your Credit Report

Despite the fact that credit scoring models count credit inquires made within the same time period as one hard inquiry, each individual mortgage loan or car loan inquiry will remain separately on your credit report for a 25-month period. Even better news is that many credit score calculations typically only use the loan shopping inquiries for 12 months, and then they sit quietly until they age off of your credit report.

In short, when loan shopping, your credit score may be less affected by multiple credit inquiries when you time your mortgage loan or auto loan applications within a short period. However, it is still important to monitor your credit report while shopping for the best rates. Keeping tabs on which lenders are checking your credit report can help you stay on top of your credit activity and see how it affects your credit score along the way!