How to Use Rate Shopping to Minimize Recent Credit Inquiries 

Most of us like to save money where we can – even when it’s just a few dollars here and there. If the two-pound bag of your favorite coffee is cheaper per ounce than the smaller bag, savvy shoppers will often go big and stock up on their preferred brew.

Find the Best Rate

But when it comes to major purchases – say when you’re buying a house or apartment, many Americans don’t always seek out the best deal on a mortgage. Research shows that more than one-third of U.S. homebuyers didn’t shop around to see if they could get a better rate on a home loan – something that could have potentially saved thousands of dollars. According to a Fannie Mae National Housing Survey, 36% of buyers received only one quote before buying a home.

Shopping Around Can Save You Money

More to the point, the Consumer Financial Protection Bureau (CFPB) Office of Research puts a dollar amount on how much people could save if they shopped for a cheaper loan, suggesting that failure to do so for the average homebuyer costs them roughly $300 per year.

Let’s do the math. If you take out a 20-year mortgage and pay more than you need to in interest to the tune of $300 a year, in two decades, you would potentially ‘lose’ $6,000. Yikes.

The 14-Day Rule Explained  

When shopping for your major purchase, it’s wise to make sure you get the very best rate possible before locking in a home loan.

• Hard Inquiries. You may have heard that too much shopping can ding your credit score if your lender sees multiple ‘hard’ inquiries on your credit reports in the weeks leading up to a large purchase. A hard inquiry happens when you permit a lender to pull your credit to secure a loan. Even if you don’t accept the loan or ultimately don’t qualify for it, the inquiry can remain on your credit report for up to two years.

• Rate Shopping. Fortunately, making multiple applications for credit within 14 days (and sometimes up to 45 days) for a single type of loan (say, a mortgage or vehicle) will only count as one hard pull.

• Not for Credit Cards. Be careful here. The rate shopping rule does not apply when you’re talking about credit card applications.

Apply Strategically

If you know you are going to purchase a home or vehicle in the next few months, it’s a good idea to avoid any other major money moves, such as applying for new credit cards or personal loans.

• For those looking to finance a home, vehicle — or even a new boat — it’s important to shop around (during a brief period) with various financial institutions before settling on a lender.
• Technology makes this easier than ever to do from the comfort of your couch.
• The Federal Trade Commission offers consumers an FAQ to help buyers make educated choices throughout the process. 

And even if you don’t think you could get a lower rate, you won’t know for sure until you try.

With reporting by Casandra Andrews