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

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Rate Shopping? Here’s How to Protect Your Credit

Scoring formulas are used to group similar credit checks and make them one when you are shopping for specific loans.

By Erin El Issa Senior Writer Personal finance, analysis of data credit card Erin El Issa writes data-driven research on personal financial matters, credit cards, travel, investing, banking as well as student loans. She loves numbers and strives to simplify data sets in order to help consumers improve the quality of their lives financially. Before she became an Nerd at the beginning of 2014, Erin was an accountant for tax and freelance personal financial writer. Erin’s work has been mentioned by The New York Times, CNBC as well as on the “Today” show, Forbes and elsewhere. In her free moments, Erin reads voraciously and is unable to keep up with her two children. Erin is from 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. Prior to joining NerdWallet she was employed by the daily papers, MSN Money and Credit.com. Her work was featured in The New York Times, The Washington Post, the Los Angeles Times, MarketWatch, USA Today, MSN Money and many other places. Twitter: @BeverlyOShea.

February 3, 2023

Written by Kathy Hinson Lead Assigning Editor Personal financial, credit scoring, debt and money management Kathy Hinson leads the core personal finance team at NerdWallet. Previously, she spent 18 years working at The Oregonian in Portland in capacities such as chief of the copy desk and team leader for design and editing. Prior experience includes writing copy as well as news editing at several Southern California newspapers, including the Los Angeles Times. She earned a bachelor’s degree in mass communications and journalism in Iowa’s University of Iowa.

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If you’re considering taking out a substantial loan such as the purchase of a house or car, it’s smart to look for the most favorable terms that you can get. Even small differences in interest rates can make a huge difference in amounts over the course of the loan. It can be a mistake to go with your first loan you’re offered without looking for alternatives.

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

How do you define rate-shopping?

A loan isn’t exactly the same as shopping for groceries — there are different fees to get the same amount of money. The cost you pay for your loan can be determined in part on your credit scores, debt amount and income.

You can’t comparison shop without actually applying. And your credit scores can see a brief, but temporary drop when lenders check your credit score because you’ve made an application for the loan.

However, scoring formulas take the likelihood that you’re shopping for one loan into consideration. Similar credit checks are put together and counted as one — the scoring models understand you’re not in the market for multiple houses, student loans or car loans.

This gives you the freedom to check several interest rates of lenders on an auto loan before you go into a dealership, for example. And that lets you see whether the dealer is able to beat your best offer. Similar is the case with the mortgage and students loans.

Rate shopping and how it affects credit

There are two kinds of credit checks: hard and soft.

The kind of credit inquiry that could affect your credit score, called a ” ,” happens when you make an application for credit. Each inquiry could take some points from your credit score. That’s why you want to be careful to rate shops within a specific period of time. Therefore, multiple inquiries that are hard to answer can be viewed as one to score.

The other kind of credit check, known as a “soft inquiry” isn’t damaging to your score. It happens when you , or a marketer, or potential employer pulls your credit.

Your time frame for rate shopping

Depending on the scoring system that you use, your rate-shopping time frame will vary from 14 to 45 days. Similar inquiries during this time will not affect your score.

The duration of the time period varies across scoring firms. The latest FICO scores have the option of 45 days for rate shopping. VantageScore employs 14 days. However certain old FICO scoring models that are still in use have a 14-day window. Therefore, the best option is to put all applications into one 14-day timeframe.

Some credit card issuers have a “prequalification” process that does not alter your credit score in any way. It’s a method of determining whether you are likely to be eligible before applying. Your credit score won’t be affected in the event that you decide to apply.

Be aware of how your credit score is assessed

Find your score free of charge and the variables that affect it, plus suggestions on how to keep building.

What is the best time to rate a shop?

While loans for automobiles, homes and even education are able to be combined to facilitate rate-shopping however, you will not be able batch applications for credit cards or for consolidating debt loans.

People who in a short time frame are considered high-risk, and these inquiries are counted. NerdWallet suggests spacing credit card applications for at least 6 months if you can.

Have a rate shopping strategy

The goal of rate shopping is to get the lowest rates and you can do it without putting your credit at risk. Here’s how:

Apply for loans within a shorter time. If you aren’t sure what the length of your application window is, be safe and stick to 14 days.

Don’t apply for other credit simultaneously If you are able to avoid it. If you’re shopping to get a loan, you should avoid using a credit card simultaneously.

Getting the best deal on a large loan will help you save a significant amount of money. The process of applying for the loan after you have constructed a and knowing how to group your applications should ensure you receive the most favorable conditions.

About the authors: Erin El Issa is a credit cards expert and studies writer at NerdWallet. The work she has written for NerdWallet was featured by USA Today, U.S. News and MarketWatch.

Bev O’Shea is a former credit writer at NerdWallet. Her work has appeared in the New York Times, Washington Post, MarketWatch and elsewhere.

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