Mastering Rate Shopping: How to Secure the Best Loan Terms Without Hurting Your Credit
When it comes to securing a loan or credit card, finding the best interest rates and terms can save you a significant amount of money over time. This process, known as rate shopping, involves comparing offers from multiple lenders to ensure you get the most affordable terms. However, if not done carefully, rate shopping can negatively impact your credit score. In this blog, we’ll explore how to shop for the best rates without unnecessary score disruption and how O1ne Mortgage can assist you in this journey.
Understanding Rate Shopping
Rate shopping is the practice of reviewing loan offers from various lenders to compare the interest rates and fees they are willing to provide. This comparison is crucial because even slight differences in interest rates can lead to substantial savings over the life of a loan. While it might seem like similar loans are available across all lenders, diligent rate shopping can reveal significant differences, potentially saving you hundreds of dollars or more.
Does Rate Shopping Affect Your Credit Score?
When you apply for a loan or credit card, lenders typically perform a credit check, which involves obtaining your credit report from one or more of the national credit bureaus (Experian, TransUnion, or Equifax). These credit checks are logged as hard inquiries on your credit report, which can slightly lower your credit scores. Although the impact of a single hard inquiry is usually small and temporary, multiple hard inquiries within a short period can have a cumulative effect, leading to larger score drops.
How to Protect Your Credit While Rate Shopping
Credit scoring systems like the FICO® Score and VantageScore® have built-in accommodations for rate shopping on installment loans such as mortgages, car loans, and student loans. They treat inquiries related to multiple loan applications as a single event, provided all applications are for the same loan amount and are submitted within a specified time window.
The FICO® Score window ranges from 14 to 45 days, depending on the version used to calculate the score. To be safe, stick with a two-week period since you may not know which FICO® Score version the lender uses. VantageScore uses a rolling two-week window, meaning if successive applications are submitted within two weeks of the previous one, the effect on your score will be equivalent to a single inquiry.
Consider Prequalifying for Credit Cards
It’s important to note that FICO and VantageScore do not apply the same combining treatment to inquiries related to credit card applications. However, you can still rate shop for credit cards by taking advantage of prequalification. Many card issuers offer prequalification, which provides an estimate of the borrowing limit and interest rate you’d receive if you formally applied for a card. Prequalification typically takes only a few minutes and does not result in a hard inquiry, so it won’t impact your credit scores.
Many credit card issuers have prequalification tools on their websites, and several web-based services, such as Experian’s card comparison feature, can prequalify you for multiple card offers at once. You may also receive credit card prequalification offers in the mail. Once you’ve gathered rates and terms from several lenders or credit card issuers, choose the estimate that looks best and submit a formal application. While this will result in a hard inquiry, the benefit of finding the right rate will likely outweigh any minor, temporary damage to your credit scores.
The Bottom Line
Shopping for the best interest rates and terms from multiple lenders can help you secure the most competitive credit offers and land the best borrowing terms available. Understanding the potential impact on your credit score and using prequalification tools can help you navigate this process without unnecessary score disruption.
At O1ne Mortgage, we are committed to helping you find the best mortgage rates and terms tailored to your needs. Our team of experts is here to guide you through the rate shopping process, ensuring you make informed decisions that benefit your financial future. For any mortgage service needs, call us at 213-732-3074. Let us help you secure the best loan terms and achieve your financial goals.
Ready to get started? Contact O1ne Mortgage today and take the first step towards securing the best mortgage rates available. Our dedicated team is here to assist you every step of the way.
