When you’re looking to make a big purchase and need a loan you usually don’t want to settle on the first offer. After all, you want the best deal you can get which includes a good interest rate. Shopping around for a loan might be something to think about, but how does it impact your credit score?
Typically when you’re shopping around for a mortgage, student, or car loan the inquiries will not necessarily hurt your credit score as long you’re shopping around wisely. Shopping for a loan can create a small change in your credit score, but if you’re careful then the change will not impact you greatly. Here are a few ways to avoid hurting your credit score when looking for a loan.
- Apply for the same loan and same amount. When you’re applying for a $200,000 mortgage loan multiply times credit agencies are more likely to realize you’re shopping around for a good rate. However, if you’re applying for a personal loan for $10,000 and then a car loan for $10,000 an agency might think you’re looking for two different loans.
- Try getting approved for the loan within 30 days of the initial inquiry. Find out which lenders you are likely to use and apply for the loans within a few days of each other, allowing yourself a 30-day period to be approved. A credit agency will be suspicious about all these loans you’re trying to get approved if you apply for a loan one month, then apply for a similar one the next month, and then possibly apply again the following month.
- Don’t apply for credit you don’t need. If you are trying to open up multiple lines of credit you’ll be looked at as a high risk borrower. Also, keep in mind your debt to credit ratio (credit utilization) and how old your open lines of credit are — these impact your credit score.
Credit inquiries stay on your credit report for two years, but only impact your score for 12 months. These inquiries are about 10 percent of what determines your score; shopping around for a loan could still impact your score if you’re looking for a business loan or personal loan. Applying for new credit cards can result in a hard inquiry which could, in turn, also negatively impact your credit score.
Although you have room for to shop around for the right loan for you, it’s important to keep in mind that the slightest misstep could negatively impact your credit score. Finding the best loan for you doesn’t have to be a guessing game — AmOne can help you find a loan and lender for your financial needs. AmOne’s experts can help you to find financial solutions such as personal loans, small business loans, and debt consolidation loans. Contact AmOne to speak with our Money Coaches for free and get your loan questions answered.