Credit Inquiries… why are they bad? (part 2)

By | April 12, 2013

few points off your interest rate can make a big differenceLast time out, I talked about your credit score and why inquiries were bad for it. But at the very end, you asked the question (well, wait… actually I asked the question, but since I was writing as if we were talking and assumed you would ask… ok, never mind, I’m confusing myself – stay with me here.)

Anyway, the question was raised (how’s that?) regarding “shopping around” for a good rate on something like a mortgage and/or a car loan or something similar. And it’s definitely a valid question – after all, if I say credit inquiries are bad for your credit score, and you go to two or three mortgage companies to compare rates, are you hurting your credit score by doing so?

The short answer there is no, you will not. The credit industry recognizes this, and has put a few rules in place to make “shopping around” for certain types of loans ok. The big ones are homes and cars, although there are a few others (commercial mortgages and the like). But essentially, for these types of loans, all inquiries made within a two week period count as one inquiry. So if you are buying a home and are shopping for a mortgage, you can go to several (say three) lenders and have them quote you (which means all three will make a credit inquiry). As long as it’s in a two-week period, these three inquiries will count only as one – the credit industry will assume you are doing exactly what you are doing – shopping around for the best mortgage rate.

The same applies for an automobile loan. The industry knows that buying a car is a big deal for most folks, and getting a few points off your interest rate can make a big difference.

However, like everything else I write here, don’t assume everything I say is 100% gospel. I mean, if the credit companies change their rules, they don’t call me. But that said, yes, go ahead and shop around for the best rate if you are looking for a home or a car – it shouldn’t hurt you. But don’t apply for every credit card in town either – that will definitely hurt your score.

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