Some borrowers worry about shopping around for the best loan because they are worried how it will affect their credit score. Lenders are interested in the number of inquiries to your credit report because multiple inquiries are an indication that you are requesting new credit. The credit scoring agencies have found that borrowers who request credit frequently tend to be higher-risk borrowers Thus, frequent inquiries on your credit report that result from frequent requests for new credit (credit cards, loans, etc.) can lower your credit score.
However, credit reporting agencies understand that borrowers need to shop around to find the best loan, which can create multiple inquiries over a short period of time. To address this, the scoring formula doesn’t penalize borrowers for shopping around. The score is set up to take into account that even though you are looking for only one loan, multiple lenders may request your credit report. Here’s what Fair Isaac, the company behind your FICO score, says about rate shopping
“The score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14-day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45-day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.”
In any event, inquiries are likely to be an issue only if there is little other information in your file. If you have a long credit history and several current accounts, a single inquiry will not significantly affect your score. Since your credit score is so important, it’s wise to check your own file regularly to ensure that the information is accurate. You can do so for free using the Annual Credit Report Request Service: call 1-877-322-8228 or visit www.annualcreditreport.com.
You might consider staggering your annual requests. For example, you can request an annual copy of your Equifax report in January, your TransUnion report in May, and your Experian report in September. That way you’ll receive an up-to-date credit report every four months. Or you can request your: Free Credit Report and Score from www.lendingtree.com
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