“Rate Shopping and Credit Scores: What You Need to Know”

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Understanding Rate Shopping and Its Impact on Your Credit

At O1ne Mortgage, we understand the importance of securing the best possible terms for your loans. Rate shopping is a crucial step in this process, and we’re here to guide you through it. For any mortgage service needs, call us at 213-732-3074. Let’s dive into the details of rate shopping and how it affects your credit.

What Is Rate Shopping?

Rate shopping involves comparing interest rates, fees, and other terms from various lenders to find the best deal. This practice can lead to significant savings over the life of a loan or credit card. However, it’s essential to understand how rate shopping can temporarily impact your credit scores.

What Is an Inquiry?

An inquiry is a credit check performed by a lender to assess your creditworthiness. There are two types of inquiries: hard and soft, each with different effects on your credit scores.

Hard Inquiry

A hard inquiry occurs when you apply for credit, and a lender reviews your credit report. This can cause a small, temporary drop in your credit scores. Multiple hard inquiries in a short period can have a cumulative negative effect. However, your scores typically recover within a few months if you maintain timely payments.

Soft Inquiry

A soft inquiry does not affect your credit scores. It happens when a lender or authorized entity checks your credit report for informational purposes, such as prequalification offers or when you check your own credit report.

Does Rate Shopping Hurt Your Credit?

When rate shopping for installment loans like mortgages, auto loans, and student loans, credit scoring systems like FICO and VantageScore treat multiple hard inquiries within a short period as a single event. This minimizes the impact on your credit scores.

For FICO scores, the window is 45 days, while older versions use a 14-day window. VantageScore uses a rolling two-week window. However, inquiries related to credit card applications are not treated as a single event. To avoid multiple hard inquiries, use prequalification options from card issuers, which do not affect your credit scores.

The Bottom Line

Rate shopping is a smart practice that, when done carefully, has only a minor temporary impact on your credit scores. For installment loans, submit all applications within a 14-day period to prevent multiple hard inquiries from affecting your scores. For credit cards, use prequalification to get estimates on interest rates and fees without impacting your credit.

At O1ne Mortgage, we’re committed to helping you find the best loan terms. For personalized mortgage services, call us at 213-732-3074. Let us assist you in making informed financial decisions.

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