There can be quite a bit of confusion surrounding how shopping for loan or credit card rates actually impacts your credit score. In reality, the effect depends on what type of credit you’re applying for and what kind of scoring model is being used to determine your credit score. It may seem complicated, but it’s actually quite easy to create a smart strategy that preserves your credit while you search for the best deal for your next loan or credit score.
Ready to learn more? Keep reading to find out how to effectively rate shop for any type of credit.
How Inquiries Affect Your Credit Score
In general, an inquiry on your credit report from a lender or credit card company causes a dip in your credit score. In most cases, it should only take away somewhere between 5 and 10 points. Since new credit only accounts for 10% of your overall FICO score, it won’t have a huge impact overall. The problem comes in when you continuously apply for financing, particularly on revolving credit platforms such as credit cards. Applying for certain types of installment loans may not have such an enormous impact. Here’s why.
You actually get a bit of a credit grace period when you apply for installment loans such as a mortgage, student loan, or auto loan. These inquiries are ignored for the first 30 days that they appear on your credit report. As you’re applying for a major loan, the inquiries shouldn’t impact your score at all, even marginally, if you complete the loan application process within that period.
Unfortunately, you don’t receive this luxury when applying for credit cards. As soon as those inquiries are received by the credit bureaus, they’ll be listed on your report and start affecting your score. Whether you’re applying for credit cards because you need access to emergency funds or because you’re playing the rewards points game, be wary of the damage you may be doing to your credit score. You may be setting yourself up to require some major credit repair in the future.
How to Check Rates Without Hurting Your Credit
There are a couple of different ways you can check your rates without hurting your credit at all, which can save you a headache when it comes to fixing your credit. Just as you have a 30-day window to apply for an installment loan, the FICO scoring model now also offers you a way to rate shop as much as you want — within a few parameters, of course.
The biggest benefit is that any inquiries within the same loan type are counted as a single inquiry if the credit check is performed within a set period of time. The period you’re eligible for depends on the scoring model used by the organization pulling your credit score. For older FICO models, the grace period for lumping together inquiries is just two weeks. In new models, however, the grace period is a full 45 days. That can be extremely helpful if you’re house hunting over time or searching for a specific car to buy.
If you’re applying for a personal loan or credit card, you may still be able to check your offer terms without doing damage to your credit. Oftentimes, creditors allow for a preapproval using just a soft pull on your credit. Those don’t have any effect on your credit score, so it may be worth considering a preapproval before filling out a complete application for new credit.
What to Do About Unauthorized Inquiry Credit Errors
Unfortunately, not all creditors in the world are honest and act with your best interests at heart. This fact is evident by the potential for having unauthorized credit inquiries listed on your credit report. Be sure to monitor your report for credit errors such as these. If you see one or more entries for credit offers that you never requested yourself, it’s time to initiate a credit dispute. Your credit could be unfairly damaged through no fault of your own — and you may not even realize it.
You can initiate this process yourself by contacting the credit bureaus. Alternatively, you could hire a credit repair professional to review your entire credit report for you and execute the credit dispute process on your behalf. At Ovation Credit, we offer a free consultation to help you decide how to repair your credit. It’s a fast and easy way to determine whether or not you could benefit from a team of credit repair professionals.