How to Use Rate Shopping to Minimize Recent Credit Inquiries 

How to Use Rate Shopping to Minimize Recent Credit Inquiries 

You can protect your credit score and seek multiple quotes for a specific type of loan

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.

It All Adds Up

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 them thousands of dollars. According to the Fannie Mae National Housing Survey, 36% of buyers received only one quote before buying a home last year.

Shopping Around Can Save a Ton

More to the point, the Consumer Financial Protection Bureau 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 needed 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  

With inflation soaring and interest rates higher than they’ve been in years, it’s wise to make sure you get the very best rate possible before locking in a home loan. 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.

But here’s where we need to separate credit myth from credit reality. 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. But be careful here. The same rule does not apply when you’re talking about credit card applications.

Financial Knowledge is Power

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 this from the comfort of your couch. And the Federal Trade Commission offers consumers a FAQ on shopping for a mortgage 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

Jean Chatzky

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