How Rate Shopping Affects Your Credit Score

What Is Rate Shopping?

Rate shopping is the process of comparing interest rates, fees and other terms from lenders to get the best possible deal. Depending on the process the lender uses, you may incur a hard or soft inquiry on one or more of your credit reports.

In practice, it usually starts with prequalification or preapproval. A lender reviews your credit profile and income at a basic level, then estimates the annual percentage rate (APR) and other terms you'd likely qualify for. That said, some lenders may require you to submit a full application to view loan terms. In this case, though, the offer is firm.

Rate shopping before you accept a loan is important because it gives you a chance to see multiple offers. Each lender offers a different set of rates and fees, and they also use different methods for assessing risk. So, even though your information stays the same across all applications, you could get wildly different offers—and an opportunity to make sure you get the best one.

Learn more: What Is Rate Shopping?

Does Rate Shopping Hurt Your Credit?

Rate shopping can lower your credit score, but the effect is often small and short-lived. It also depends on how quickly you complete the process and how each lender checks your credit:

• Hard inquiry: If you submit a full application or, in some cases, go through the preapproval process, the lender may make a hard inquiry on one or more of your credit reports. A hard inquiry typically temporarily lowers your credit score by just a few points.
• Soft inquiry: With prequalification—and sometimes preapproval—the lender may run a soft credit check of one or more of your reports. In this case, though, the process has no impact on your credit score.

Multiple hard inquiries for different types of credit in close succession can have a cumulative negative effect. To avoid punishing borrowers for trying to find the best loan terms, both FICO and VantageScore^® credit scoring models will essentially treat hard inquiries from applications submitted within a narrow window as a single event.

More specifically, they do this for multiple inquiries for the same type of installment loan, such as a mortgage, an auto loan or a student loan. So, you can't expect mortgage and auto loan inquiries to be combined. It also doesn't work for credit cards.

With Experian, you can get matched with credit card and loan offers based on your credit profile. Reviewing your offers before you apply is the best way to shop for rates without racking up hard inquiries.

Note: When you rate shop by submitting full applications for credit, each hard inquiry will still appear on your credit reports; you just won't see the cumulative effect on your credit score, as long as they're all completed in the rate shopping window.

Learn more: How Many Hard Inquiries Is Too Many?

How Long Is the Rate Shopping Window?

The rate shopping window is a stretch of time during which multiple hard inquiries for the same loan type are counted as one for scoring purposes. Its length depends on the scoring model:

• FICO: The newest versions of the FICO^® Score^Θ use a 45-day window, while older versions limit it to just 14 days. FICO also ignores all rate shopping inquiries under 30 days old.
• VantageScore: All VantageScore models use a 14-day window.

Because you usually can't tell which scoring model or version a lender is going to use, it's best to stick to a 14-day window when shopping around for a loan.

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Tips for Rate Shopping

Regardless of the type of loan you're shopping around for, here are some steps you can take to maximize your savings while minimizing the impact on your credit:

• Get multiple quotes. As previously mentioned, each lender has its own approach to underwriting. Even if the first offer you see is a good one, you could miss out on further savings if you don't compare rates from multiple lenders.
• Compare offers on the same day. Lenders usually give you time to accept a loan offer. But because interest rates can fluctuate regularly—in the case of mortgage loans, daily—quotes gathered a week or two apart may not be comparable.
• Limit your search to the rate shopping window. Submitting all of your loan applications within a 14-day period will minimize the credit score damage, no matter which scoring model or version a lender happens to use.
• Negotiate the terms. If you prefer a certain lender, but it's not offering the best terms, you may be able to leverage better offers to negotiate a lower interest rate or fees. Just make sure the lender doesn't do other things to compensate, such as extending your loan term or raising your APR in exchange for a lower origination fee.
• Check your credit first. Knowing your credit standing before you apply can give you a reasonable idea of your approval odds for a certain loan. You can get free access to your FICO^® Score with Experian.

The Bottom Line

Rate shopping is a smart practice that, done carefully, has only a minor temporary impact on your credit scores. That dip often fades within a few months as long as you keep paying your bills on time. A lower rate, meanwhile, stays with you for the life of the loan.

When possible, try to compare rate quotes through prequalification. With Experian, for instance, you can get matched with personal loans based on your credit profile with just a soft inquiry. It's also worth monitoring your credit before you apply to understand your credit situation and get insights into how you can improve it.