We think it's important for you to understand how we make money. It's pretty simple, actually. The offers for financial products you see on our platform come from companies who pay us. The money we make helps us give you access to free credit scores and reports and helps us create our other great tools and educational materials.
Compensation may factor into how and where products appear on our platform (and in what order). But since we generally make money when you find an offer you like and get, we try to show you offers we think are a good match for you. That's why we provide features like your Approval Odds and savings estimates.
Of course, the offers on our platform don't represent all financial products out there, but our goal is to show you as many great options as we can.
If you’re planning to take out a loan, rate shopping makes sense if you want to compare offers and identify the best terms for your situation. The downside? It could bruise your credit.
Lenders will typically conduct a hard credit inquiry when you submit your application — and an influx of these inquiries on your credit reports may temporarily ding your credit scores.
What’s the purpose of rate shopping?
Rate shopping — the process of gathering quotes from multiple lenders and comparing offers — can help you spot better loan terms and potentially save money on interest.
Does rate shopping hurt your credit?
Because rate shopping often involves applying for several loans within a short time frame, this practice can potentially ding your credit — at least temporarily. But it depends on whether the lender does a soft or hard credit pull.
Do soft credit pulls affect your credit scores?
Soft inquiries won’t affect your credit scores. This type of inquiry can occur when a lender prescreens you for a loan or credit card. This might happen if you apply for prequalification for a credit card, auto loan or personal loan, for example. Keep in mind that prequalification doesn’t guarantee loan approval — and your loan rate and terms may change after you submit a formal application.
How hard credit pulls affect your credit scores
Hard inquiries show other lenders that you’re looking to borrow money. These inquiries usually show up on your reports when a financial institution checks your credit as part of a lending decision. According to credit-scoring company FICO, a single hard inquiry may lower your FICO score by up to five points and remain on your credit reports for up to two years.
Tips for rate shop without hurting your credit
Do some research before you apply
Getting as much information as you can before you apply for a loan will help you weed out certain offers. Ask potential lenders about features such as the annual percentage rate, or APR, loan requirements, available loan terms and fees so you can begin to compare lenders.
If a lender offers the ability to apply for preapproval or prequalification without a hard credit pull, you get a sense of the estimated loan amount, terms and rates you might qualify for without affecting your credit. But keep in mind, you’ll still need to apply — and if you qualify, your loan terms could be different.
Limit your applications to a short window
Some credit-scoring models consider multiple inquiries within a 14-day window as just one inquiry.
But the exact window depends on the credit-scoring model the lender uses. For example, VantageScore 3.0 counts multiple credit inquiries within a 14-day window as just one inquiry, while newer FICO scores treat multiple inquiries as a single inquiry if you made them within 45 days. Since you probably won’t know which credit-scoring model the lender is using, it might be best to do all your rate shopping within 14 days.
Apply for only one loan type at a time
If you’re planning to take out an important loan soon, such as a mortgage, avoid applying for other types of loans at the same time. If you apply for other loans or credit, those hard credit inquiries will show up on your credit report as separate inquiries — even if you apply within the same 14-day time frame.
Rate shopping could be a good move if you want to save money on your next loan. Your credit scores may drop slightly in the short term, but you could save a lot in interest and fees by comparing loan offers. Once you have the loan, you can continue building credit by making payments on-time and in full as well as keeping your credit utilization low. Only apply for credit you need and consider leaving your credit card accounts open to build a lengthy credit history.