When you're shopping for a loan, you might wonder: "Is it bad to let multiple lenders check my credit?" After all, each inquiry might feel like it could negatively impact your credit score. Let’s break down what’s really going on and what you should know about credit pulls during loan shopping.
Types of Credit Pulls
There are two main types of credit inquiries:
-
Hard Pulls (Hard Inquiries) – This happens when a lender checks your credit as part of their decision-making process for a loan or credit application. Hard pulls can cause a slight dip in your credit score.
-
Soft Pulls (Soft Inquiries) – These occur when a lender checks your credit for pre-qualification, a background check, or even when you're simply checking your own credit score. Soft pulls don’t usually affect your credit score.
What Happens During Loan Shopping?
When you're shopping for a loan, especially for something like a mortgage loan, multiple lenders might pull your credit to assess your risk as a borrower. Typically, a hard pull happens when you formally apply for a loan.
While multiple hard inquiries could theoretically hurt your score, FICO (the most widely used credit scoring model) and VantageScore allow for some leniency in the case of certain types of loans.
The Grace Period for Loan Shopping
The good news is that credit scoring models understand that loan shopping is a process, and they give you a "shopping window" to reduce the impact of multiple inquiries. Here’s how it works:
-
FICO Score: When you’re shopping for a loan, all hard pulls within a 14 to 45-day period are typically treated as a single inquiry. This means you could technically apply to multiple lenders without seeing a big dip in your credit score.
-
VantageScore: Similar to FICO, VantageScore also allows for multiple inquiries within a 14 to 45-day period to be counted as one.
What Does This Mean for You?
If you’re actively comparing loan offers from various lenders (whether it's for a home, car, or student loan), the impact on your credit score should be minimal as long as you make all your applications within a short time frame (usually 14-45 days).
However, it’s important to note:
-
Other types of loans, such as personal loans or credit cards, may not benefit from the same grace period. You’ll want to space out applications for these types of credit or only apply for the loan you’re seriously considering.
-
Too many inquiries can be a red flag for lenders. If they see that you’ve been applying for lots of loans within a short time, it might indicate financial distress or that you’re struggling to get approved. Two to three options are usually enough to give you a good indication of whether or not you are getting a good deal.
Why Does This Matter?
It’s crucial to balance shopping for the best deal with protecting your credit score. While shopping around for loans is smart to find the best rates, doing it strategically can prevent unnecessary damage to your credit score, which can affect your approval chances or lead to higher interest rates.
Tips for Smart Loan Shopping:
-
Limit your applications to a short period: Apply to all lenders within 14-45 days to minimize the impact.
-
Pre-qualify: Many lenders offer pre-qualification with a soft pull of your credit, which doesn’t affect your score. Pre-qualifying with several lenders gives you an idea of the rates and terms you could receive.
-
Check your credit first: Know your credit score and make sure it’s in good shape before applying.
-
Focus on the right type of loan: If you’re just starting the loan process, try to stick to one type of loan at a time, especially if it’s something like a personal loan, which doesn’t get the same treatment during credit pulls as mortgages or auto loans.
Compare with BoniFi Capital
We encourage you to bring any offer you've received from another mortgage lender to us for review. We can let you know if you are getting a fair rate and if we can give you a better deal. As long as you do this within your original shopping window, you are not hurting your credit score.
Is it beyond the 14 day mark since you first pulled credit? We can give you an idea of what you'd be offered based on the credit score you provide, and you can decide if it is enough to warrant another credit pull.
Conclusion
In summary, multiple credit pulls can affect your credit score, but if you're smart about how and when you apply for loans, the impact can be minimized. Take advantage of the "shopping window" and apply for loans within a short period. Just make sure you’re only applying for loans that you’re seriously considering and be mindful of how too many inquiries might appear to lenders.
Happy loan shopping!
