Loan Shopping? Here’s How Multiple Inquiries Impact Your Credit Score

Shopping around to make sure you find the best deal on a loan is financially smart. Getting the best interest rate and terms possible, especially on a mortgage, could save you thousands or even tens of thousands of dollars over the life of a large loan. And we can thank the internet for allowing us access to hundreds of lenders where we can kick their tires and explore what kinds of deals we can get.

That being said, it’s best to keep your interest rate shopping limited to a short window of time if your credit reports are being pulled as part of the process. There’s a chance that rate shopping could have a negative impact on your credit scores if you’re haphazard about it.

What Is a Credit Inquiry?

An inquiry is a record of access into your credit report. So, when you apply for credit, the credit bureaus are going to make a record of who accessed your credit report and when, and place that record on your report.

Some inquiries, such as checking your own personal credit, are benign. These are referred to as “soft” inquiries. Other inquiries, such as applying for new credit, have the potential to impact your scores negatively. These are referred to as “hard” inquiries.

Applying for Multiple Accounts vs. Rate Shopping

The sole reason the credit score exists is to help lenders predict risk. And research shows that applying for multiple new accounts in a short period of time is predictive of elevated risk.

Due to this fact, credit scoring models like FICO and VantageScore are designed to pay attention to the number of hard inquiries on your credit reports when calculating your scores. And a larger number of hard inquiries could translate into lower credit scores in some scenarios.

The exception to this rule is when you’re rate shopping. Your credit reports could easily get polluted with multiple hard inquiries in a short period of time when you’re trying to find the best financing offer available. But credit inquiries that occur as a result of rate shopping are not indicative of the same elevated risk mentioned above.

As a result, credit scoring models often treat them differently — provided that those inquiries all occur within a certain window of time and are from certain types of lenders. Both FICO and VantageScore scoring models include logic that protects your scores from the impact of rate shopping inquiries.

FICO’s Rate-Shopping Window: 45 Days

In FICO’s scoring models, multiple inquiries that occur within a 45-day window are treated as one single shopping event, provided those inquiries are from mortgage, auto loan, or student loan lenders.

Inquiries outside of these three categories, such as credit card inquiries, are not protected, because consumers don’t typically shop around for the best rate on a credit card.

So, if you applied for a mortgage on Oct. 1 and applied at a second lender on Nov. 1, the two mortgage inquiries would count as one for the sake of credit score consideration, because they were within 45 days of each other.

VantageScore’s Rate Shopping Window: 14 Days

VantageScore’s logic is both more and less restrictive than FICO’s logic.

The window for VantageScore is 14 days, versus 45 days for FICO. On the other hand, VantageScore models don’t include category restrictions when considering the impact of multiple inquiries. Instead, all inquiries that occur in a 14-day window only impact your credit scores as a single credit application event.

So, if you apply for a credit card on Oct. 1 and two more credit cards on Oct. 8, all three credit card inquiries would count as one for credit score consideration, because they were within 14 days of each other. However, applying for two mortgages a month apart, as in the previous example, would count as two separate inquiries on your VantageScore credit score. So if you want to cover both bases, try to limit your loan shopping to a two-week window if possible.

A Final Note

Credit inquiries — of any type — that are older than 12 months do not count in either FICO or VantageScore’s credit scoring systems. And, please keep in mind that inquiries are the least influential factor in your credit scores.

So even if you have three or four inquiries that are counted against your scores, we’re talking about a minimal number of points deducted, and even that impact will disappear within a year. Always keep inquiries in this perspective: They’re just not that important.

More by John Ulzheimer:

John Ulzheimer is an expert on credit reporting, credit scoring, and identity theft. The author of four books on the subject, Ulzheimer has been featured thousands of times over the past decade in media outlets including the Wall Street Journal, NBC Nightly News, The Los Angeles Times, CNBC, and countless others. With professional experience at both Equifax and FICO, Ulzheimer is the only credit expert who actually comes from the credit industry. He has been an expert witness in over 230 credit related lawsuits and has been qualified to testify in both federal and state courts on the topic of consumer credit.

Loading Disqus Comments ...