Will Rate Shopping Hurt My Credit Score?
If you’re in the market for a loan, you might be doing a little bit of rate shopping to see what you qualify for and what you don’t qualify for. The question on everyone’s minds is whether rate shopping will hurt their credit score.
The short answer is that it depends. Let’s dig a little deeper.
What is a soft check and what is a hard check?
The difference between a soft check and a hard credit check should be understood before you can understand how rate shopping affects your credit.
A soft credit check (sometimes called a soft inquiry or soft pull) is done by banks and other businesses fairly commonly when they’re trying to sell a product which is credit dependent. An example of a product which is frequently sold like this is a credit card. A salesperson or a lender will look through the basics of your credit profile to understand where you stand and whether you’re a good fit for the product. Reviewing your credit information is also a soft check.
Hard credit checks (sometimes called a hard inquiry or hard pull) are commonly performed by potential lenders when a person is applying for a loan. When a person applies for a loan, a banker usually accesses that persons credit score and credit report to review which results in a hard inquiry mark being placed on your credit report.
Starting a loan application online doesn’t result in a hard credit check being done immediately. Basic details such as your name, address, occupation, and income on a preliminary application results in online lenders being able to perform a soft credit check on you. This lets them estimate the rate you might qualify for. If everything is in order and you give the go-ahead, a hard credit check will be done later.
Tip – If you give your social security number to a potential lender, you can safely assume that a hard credit check is on the way. Until you’ve given your social security number, any rate offer you receive is based on a soft credit check.
Soft credit checks keep your credit score safe
Complete as many preliminary applications as you’d like if you’re looking at options which are based on soft credit checks.
If you swim a little deeper and the bank performs a hard credit check, this results in your credit score is affected. In most cases, this means that you lose a few points from your credit score. This is the only way you can get a solid answer which isn’t an estimate. If you have good credit already, you’ll usually get those points you lost back within six months.
All hard credit inquiries aren’t the same. If you apply for several loans of the same type within a window of 14-45 days, it is looked at by the credit bureau and thought of as low-risk behavior. They’ll interpret it as you looking for a good rate and will think about it as a single inquiry.
If you apply for a lot of credit cards simultaneously or close together, it is seen as risky financial behavior resulting in your credit score taking a big hit. If you’d like multiple credit cards, you should try to time your credit card applications to once every six months. If you have a credit score which isn’t in good shape, you should wait a bit longer than that.
Remember to read a page carefully before entering any personal information online. Look for details which tell you whether your credit will or will not be affected. If the site isn’t clear, call the lender’s customer service line and ask them about it before you enter in any personal details.
You’re entitled to be as careful as possible because it’s your credit score that will be affected and not theirs.