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Rate Shopping? Here’s How You Can Guard Your Credit

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Rate Shopping? Here’s How You Can Protect Your Credit

Scoring formulas put similar credit checks together and make them one when you search for certain loans.

By Erin El Issa Senior Writer Personal finance, data analysis, credit cards Erin El Issa writes data-driven studies on personal finances, credit cards investments, travel, as well as student loans. She loves numbers and aims to simplify data sets in order to assist consumers in improving their finances. Before becoming an Nerd in 2014, she was an accountant for tax and freelance personal financial writer. Erin’s work has been cited by The New York Times, CNBC and The «Today» show, Forbes and elsewhere. In her spare moment, Erin reads voraciously and struggles to keep on top of her two kids. She is based in Ypsilanti, Michigan.

and Bev O’Shea personal finance writer | MSN Money, Credit.com, Atlanta Journal-Constitution, Orlando Sentinel Bev O’Shea is a former NerdWallet authority on consumer credit, scams and identity theft. She has a bachelor’s degree in journalism from Auburn University and a master’s in education from Georgia State University. Before joining NerdWallet she worked for the daily papers, MSN Money and Credit.com. Her work has appeared throughout the world in The New York Times, The Washington Post, the Los Angeles Times, MarketWatch, USA Today, MSN Money and other publications. Twitter: @BeverlyOShea.

Feb 3, 2023

Written by Kathy Hinson Lead Assigning Editor Personal financial, credit scoring, managing money and debt Kathy Hinson leads the core personal finance team at NerdWallet. In the past, she worked for 18 years working at The Oregonian in Portland in roles including copy desk chief and team leader for design and editing. Previous experience included news and copy editing at several Southern California newspapers, including the Los Angeles Times. She graduated with a bachelor’s in mass communications and journalism from the University of Iowa.

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If you’re planning to take out a huge loan to finance a car or house, it’s smart to look for the best terms you can find. Even small differences in interest rates can result in some significant figures over the duration of the loan. It’s not a good idea to accept the first loan you’re offered, without doing some research at other options.

Here’s what to know about rate shopping and how to .

How do you define rate-shopping?

A loan isn’t like buying groceries — people pay different amounts to borrow the same amount of money. The price you pay for you loan can be determined in part through your credit rating, your debts and income.

You cannot compare shops without actually applying. And your credit scores can take a small, temporary dip when a lender checks your credit after you’ve submitted an application for a loan.

But scoring formulas take the likelihood that you are shopping for one loan into consideration. Similar credit checks are put together and counted together -and the scoring models recognize you’re not in the market for multiple houses and student loans or automobile loans.

This gives you the freedom to check several lenders’ interest rates on a car loan before you go into a dealership, for example. And that lets you see if the dealer can beat your best price. Similar is the case with mortgages and student loans.

Rate shopping and how it affects credit

There are two kinds that credit check: hard and soft.

The type of credit check that affects your credit score, called a » ,» happens when you make an application for credit. Each inquiry can shave a few points off your score. This is the reason you must be sure to rate your shops within a specific period of time. Therefore, multiple hard inquiries can be treated as one to score.

The other kind of credit inquiry, called a «soft inquiry,» will not affect your credit score. It happens when you , or a marketer, or potential employer checks your credit.

Your time frame for rate shopping

Based on the scoring method used, your rate shopping window will range from 15 to 45 days. Similar requests within this time frame are unlikely to affect your score.

The time frame varies between scoring firms. The latest FICO scores offer the option of 45 days for rate shopping. VantageScore utilizes 14 days. However certain older FICO scoring models that are still in use have a 14-day window. Therefore, the best option is to combine applications within a single 14-day window.

Some lenders and credit card issuers offer the «prequalification» process that doesn’t impact your credit in any way. It’s a way of determining whether you’re likely to be eligible prior to applying. Your credit score doesn’t change unless you choose to apply.

Be aware of how your credit score is assessed

Find your score free of charge and the factors that impact it, and get tips on how to continue building.

When can’t you rate shop?

While loans for cars, homes and education can each be grouped for rate-shopping, you won’t be able to batch your applications for credit cards, or consolidating debt loans.

Individuals who are in a very short time frame are considered high risk, and these inquiries all count. NerdWallet suggests spacing credit card applications out by at least six months if you can.

Develop a strategy for rate shopping

The goal of rate shopping is to find the most competitive rates, and it’s possible to do that without jeopardizing your credit. Here’s how:

Apply for loans in a fairly small time. If you aren’t sure how long your application window is, take your time and stick up to 14 days.

Don’t apply for other credit at the same time when you can. If you’re shopping in the market for mortgages, avoid applying for credit cards at the same time.

Finding the most affordable deal for a substantial loan will make a huge difference in cash. Applying for the loan once you have built a and knowing how to process your applications can ensure you receive the most favorable terms.

About the authors: Erin El Issa is a credit cards expert and writer on studies at NerdWallet. Her work has been featured in USA Today, U.S. News and MarketWatch.

Bev O’Shea was a former credit writer for NerdWallet. Her work was published in publications such as the New York Times, Washington Post, MarketWatch and elsewhere.

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