Will Interest Rate Shopping Hurt My Credit Score

If you've ever bought a house or car, your research probably included some interest rate shopping. Even if you have a great credit score, you don't know if the interest rates offered at a dealership or your own bank are really the best you can get until you check out what other lenders are offering. While this is a smart financial move, a lot of people worry about what this will do to their credit score-especially if they are gearing up to make a big purchase. Certain kinds of credit inquiries do impact your score, but there is a built-in allowance for interest rate shopping.
Most credit scores are not affected by multiple inquiries from auto or mortgage lenders within a short period of time-usually 30 days. In these cases, multiple inquiries will be treated as a single inquiry, and this will have little or no impact on your credit score.
However, shopping around for interest rates usually means you're preparing for a big purchase. To best protect your credit, there are a few things to keep in mind:

• Apply for the same type of loan for the same amount. It's fairly evident on a credit report that when five lenders pull your credit for a $300,000 mortgage loan, you're not buying five $300,000 homes.
• Conduct your business as quickly as possible. While the 30-day grace period is no myth, you might want to treat it as a weeklong grace period. Figure out which lenders you want to check out and do all your applications within a few days.
• Do not apply for other forms of credit during this time period. Applying for too many loans or lines of credit at once could make you look like a higher risk to creditors.

Different types of inquiries
Remember, not all inquiries are created equal; only a hard inquiry will impact your credit score. A hard inquiry is when a mortgage lender, landlord, bank, or other creditor accesses your credit report because of a transaction you initiated. The key here is that you initiated this inquiry by asking for a line of credit from a lender.
The other two types of inquiries generally do not have any effect on your score. A soft inquiry is initiated by someone other than you, such as a lender or creditor. Think of the promotional offers you get in the mail. You didn't ask for that pre-approved credit offer, but someone at the company pulled your information.
A personal credit inquiry also does not impact your score-you can pull your credit any time you want. And if you are about to apply for a loan or do some interest rate shopping, you should pull your credit report and score so you have a better idea of what kind of interest rates you'll be offered.

article provided by: Equifax Blog

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