This Is the Best Time to Shop for a Loan So You Don’t Ding Your Credit Score

Key Takeaways

Each time you request a quote for an installment loan, a hard inquiry is recorded on your credit report, which can lower your credit score unless you limit your requests to within a 45-day window.
Rate shopping can help you find the loan product with the best interest rates.
FICO counts all inquiries of the same type as one inquiry if made during a 45-day window. VantageScore uses a 14-day window.

When applying for a loan or line of credit, rate shopping can help you save significant amounts of money over the life of the loan by ensuring you get the best rate possible. When requesting, comparing, and analyzing potential credit offers, you’ll review interest rates, fees, and terms for each loan to evaluate the best offer from multiple lenders.

However, when rate shopping for an installment loan—such as a personal loan, mortgage, or auto loan—limit your searches to a 45-day window so that your credit score doesn’t get negatively impacted. By limiting the number of requests within a short time frame, they’re counted as a single inquiry. As a result, the number of inquiries will not negatively impact your credit score, which may help you get the best possible interest rate and terms.

Why You Should Capitalize on This Rate-Shopping Window

Every time you apply for a loan, the lender does a hard credit check (also called a hard inquiry) on your credit report. This gives them access to your credit history and current financial situation. However, each hard credit check slightly dings your credit score. Although it’s a temporary drop, it can become a problem if you’re shopping around for a loan and submitting multiple applications.

Fortunately, you have a rate-shopping window. If you apply for multiple loans for the same type of loan within a short window of time, the credit monitoring bureaus will only count them as a single inquiry. The FICO model uses a 45-day rate-shopping window while VantageScore limits you to 14 days.

By confining your rate-shopping to this window of time, you'll minimize the negative impact on your credit score.

What Counts as Rate Shopping?

Rate shopping might sound simple, but there are a few limitations. To count as rate shopping, you have to submit loan applications for the same type of loan. So if you’re shopping for a mortgage and an auto loan, those count as two separate inquiries even if you shop within 45 days.

In addition, the amount on each loan application must be the same to count as rate shopping. For example, if you apply for three mortgages but request three different amounts, each will count as a hard inquiry even though you might be within the 45-day window.

And if you’re shopping for credit cards, rate-shopping rules don’t apply. However, you can limit damage to your credit score by getting pre-qualified, which leaves a soft pull on your credit report, not a hard pull.

Tips for Effective Rate Shopping to Minimize the Impact on Your Credit Score

Now that you know what rate shopping is and why it's so important, take a look at these suggestions for getting the most out of the process:

Keep track of when you make inquiries and list which quotes you’ve requested.
Use the same loan types and amounts when requesting quotes, so they won’t be counted as separate inquiries.
Check your credit reports regularly for errors that could damage your score.
Be strategic when shopping for different types of loans, as each loan can result in a separate hard inquiry.
Pay down debt to improve the offers you receive when rate shopping.

Tip

You can access your credit score for free through annualcreditreport.com. While credit bureaus are required to provide this information at least once a year, many offer free access more frequently.

The Bottom Line

If you know you'll be needing an installment loan—like an auto loan, a mortgage or a personal loan—in the near future, block off some time to do rate shopping within a 45-day period. Not only will this protect your credit score, but you'll be able to choose from the most competitive interest rates and terms, saving you money in the long run. Don't forget that if you're requesting quotes from lenders that use VantageScore, your rate-shopping window is only 14 days, not 45.