One of the factors that can impact your credit score negatively is too many credit inquiries. The more credit checks performed against you, such as when you apply for credit card offers or loans, the likelier it is your credit score will drop.
What if you’re trying to get your first credit card or find an affordable loan on a new car? Often, these situations require filling out several applications at a time, resulting in multiple credit checks. Will shopping for credit doom your score?
Avoid Credit Checks Completely
It is possible to get a loan from a no credit check lender. You wouldn’t have to worry about checks against you in this situation. However, your credit score may still be in jeopardy if you take this route.
No credit check loans are often provided to high risk or subprime borrowers, which means the interest rates are generally quite high to compensate for the added risk level. If you obtain one of these loans, you will avoid the credit inquiry but take on unnecessarily high payments. The inability to make these payments if they are too expensive will have a much more damaging effect on your credit than a simple credit check.
Lines of Credit Versus Loans
If you want to try and get the best rates possible, you will have to avoid things like instant approval auto loans and no credit check mortgages. Instead, you must shop for a traditional line of credit or loan.
These two types of credit are treated differently when it comes to inquiries into your credit. Your application strategy will depend on which you are trying to obtain.
Line of Credit
When you apply for a line of credit, like a credit card, each application you send in results in an inquiry. According to MSN Money, “For most people, one inquiry will generally knock no more than five points off a score (and scores typically run from 300 to 850, so that’s not a big percentage).”
However, if you are within a point or two of the next credit score tier, you should be mindful that one inquiry could prevent you from reaching a higher level or bump you down a notch, depending on where your score fits in the range.
If you apply several times in a short period of time, though, your score will really drop, especially if you have a short credit history. This means that you should avoid multiple applications at once and be very selective about where and when you apply for a line credit.
Loans
Applying for loans is a completely different situation. Credit bureaus recognize that consumers participate in “rate shopping” when looking for a loan. For this reason, several inquiries within a short period of time are treated as one. FICO, a leading credit reporting agency, explains “Looking for a mortgage, auto or student loan may cause multiple lenders to request your credit report, even though you are only looking for one loan. To compensate for this, the score ignores…inquiries made in the 30 days prior to scoring.”
So, if you are able to find a loan within 30 days, your credit score isn’t affected. if multiple loan inquires exist within a normal shopping period, prior to this 30 day period, they are lumped together and reported as one instance. Credit bureaus consider a shopping period to be 45 days.
Checking Your Own Credit Does Not Harm Your Score
Your credit rating is only in danger if other people and organizations are performing “hard” checks. It is important you stay up-to-date on where your credit stands, and you will not be penalized for a “soft” check you perform yourself. In fact, regularly checking up on your credit is imperative if you want to maintain good credit, so obtain your credit report at least once a year.