Once you have the understanding of what credit inquiries are and how they harm your credit score, you will become concerned that rate shopping will hurt your credit score.
When looking for the best interest rates or higher loan amounts, you normally would want to shop around just to make sure that you’re getting what’s best for you.
Even if it means applying to different companies and seeing who will approve your application but making multiple loan applications will hurt your credit score. We’re going to explore why you’re better off comparing loans and making use of the services of a broker rather than applying for multiple loans.
What you, however, don’t realise is, your mortgage broker or auto salesman may run your credit with different lenders. If they come across multiple applications due to different loan companies being approached it may just send them into a state of shock.
Hard inquiries, what are they?
Hard inquiries are credit checks that you made when you applied for a loan. These are different from soft inquiries that come from checking your credit score and they stay on your credit report for 2 years.
What is rate shopping & how it affects your credit?
Not all inquiries are treated the same and many credit scoring calculations are forgiving when it comes to borrowers. Mortgage, auto and student loan inquiries receive special treatment because they realize you are looking for the best rate rather than desperate to qualify for a quick cash loan.
45 day window for multiple inquiries
All applications made within a period (30 days after first application) are treated as a single inquiry. The period which normally varies from 14-45 days also depends on the credit scoring model that’s used to pull your credit score. So even if you made 5 or 15 applications they will all count as one inquiry for your credit score.
Remain cautious when applying for loans
Rate shopping exception only applies to mortgage, auto and loan applications. So when looking around for the best loan and rates concerning mortgages and auto loan applications are considered to be acceptable.
If you are applying for a credit card, each inquiry is treated as a single inquiry, despite the number of times you applied or the period. It will drop your credit score with each credit card application.
Multiple loan applications can be treated as a single inquiry on your credit score but some will make your credit score drop. It will decrease once you stop making multiple applications.
Can I still rate shop?
Comparative shopping is always the wisest move to make, especially when you want to make a big financial purchase, like a home or a car. So don’t let the fear of what could happen to your credit score keep you from shopping around.
You can save so much money in the long run when you keep shopping around and you get the best terms with a lender. To do this without impacting your credit score use loan comaprsion sites.
Are multiple pre-approvals bad?
What it does do is pit one lender up against another to offer the better rate or deal. Applying to more than one lender allows you to compare rates and fees but can affect your credit report and score due to several credit inquiries.
Multiple pre-approvals, do they affect credit score?
Will getting pre-approved with multiple lenders hurt my credit score? This is commonly known as a hard inquiry and will lower your credit scores by a few points. But if any mortgage lenders check your credit within 45 days of your first credit check, those checks won’t count as additional hard inquiries.
Are multiple mortgage applications OK?
It makes sense to shop around for the best mortgage rate or loan as it will be with you for the better part of your working life.
So you can apply for multiple mortgages on one property and your chances of approval for the one you want won’t be harmed as this will be seen as a normal part of obtaining a mortgage. That being said, brokers could assist you in applying to multiple providers with only one application and one credit score.
How many loans can you apply for at once?
You can have more than one personal loan and apply simultaneously for multiple credit products. But just because it can be done, it doesn’t mean it should be done. You can negatively affect your credit score and your overall financial health.
Can you have two loans at the same time?
It’s not always a good idea, but some lenders allow you to take out a second loan once half of the other loan has been paid. You can get into a cycle of debt and may also not qualify for as good a deal as you would have if the first loan was paid off completely.
What is the waiting period between loans?
The general idea is to wait 6 months before you apply for another loan or get more credit cards. It gives your first loan application time to fade away and became part of your credit report.
You should also work on reducing any other loans or debts that you may have accumulated. By taking your time and doing things the right way, you will find that not only will you improve your credit score but you also look like a very good prospect to any potential lender.
How loan applications can affect my credit score
A potential lender will have a look at your credit file and conclude that you may have severe financial difficulties. They may not know if you were rejected or not, but it would be a cause of concern to them. So make sure that when you do apply for a loan it’s not within in a short space of time between loans.
Allow at least 6 months between paying off a loan and getting a new one or after a rejection. Researching what you are looking for and what you can afford is never a bad idea, it will prevent you from wasting your time and money in the long run.
Make sure that you meet the eligibility criteria of the lenders before applying for the loan. The overall impact of a loan application on your credit report should be very minor. If you are planning to apply for a home loan or a mortgage, it’s a good idea to avoid applying for any loans that involve credit checks.
I hope that with the information that has been laid out here for you, you are now able to know and make better-informed decisions when applying for credit.