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Bankrate has partnerships with issuers including, but not limited to, American Express, Bank of America, Capital One, Chase, Citi and Discover. SHARE: Jacob Lund/Shutterstock February 18, 2021 Kendall Little is a personal finance writer who previously covered credit card news and advice at Bankrate. Kendall currently is a . She is originally from metro Atlanta and holds bachelor’s degrees from the University of Georgia in both journalism and film studies. Before joining Bankrate in August 2018, Kendall worked in digital communications throughout various industries, including education, health care and television. Bankrate logo The Bankrate promise
At Bankrate we strive to help you make smarter financial decisions. While we adhere to strict editorial integrity, this post may contain references to products from our partners. Here's an explanation for how we make money. The content on this page is accurate as of the posting date; however, some of the offers mentioned may have expired. Terms apply to the offers listed on this page. Any opinions, analyses, reviews or recommendations expressed in this article are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by any card issuer. Bankrate logo The Bankrate promise
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. If you’re planning to take on a new loan — whether by buying a car, a home or using a personal loan to speed up debt payoff — one of the most important factors is the interest rate. For a long-term loan, committing to a high interest rate could mean thousands of extra dollars in payments over the lifetime of the loan. Even tenths of a percentage point can make a huge difference on substantial loans. That’s why it’s important to find a lender that will offer you both the best terms and the best rate on your interest obligation. To make sure you’re getting the best deal, shop around for the best rates on certain types of loans before you commit to any single one. But there are a few things you should know before getting started: What is rate-shopping
When you apply for large loans like mortgages or , it’s common to apply for more than one in order to see which will result in the most favorable rate. However, each time you apply for a loan, a is made on your credit report. This gives your potential lenders a comprehensive view of your borrowing history and allows them to decide whether you’re responsible enough to take on the risk according to their criteria. But it also has the , at least temporarily. Since creditors understand that applying for several large loans of this sort at once doesn’t mean that you actually want to take out multiple mortgages or buy multiple cars within a short time, loan applications for the same types of loans submitted within a given time period only results in one single hard inquiry on your report. For instance, if you with three different lenders within the given timeframe, that will only count as one hard inquiry. If you apply for a mortgage with three lenders and also apply for a car loan within that same period, though, you’ll see two inquiries on your report. What is the time frame
Each lender may use a different credit scoring model when evaluating your application, and each of those models have a different rate-shopping window. Generally, this window can range anywhere from 14 to 45 days. If you’re not sure which scoring model your potential lenders may use, though, make sure you submit each of your applications within a 14-day period to be on the safe side. You also won’t see the effects immediately; the hard inquiry will appear on your report 30 days after it’s made. According to FICO, only inquiries from the past 12 months are considered in your credit score, but an inquiry remains on your credit report for two years. Rate-shopping doesn t work for credit card applications
While shopping for a great rate on your mortgage is a well-known practice for potential homebuyers, creditors don’t look as favorably upon those who apply for multiple credit cards within a short amount of time. within too-short a time span can make you look like a risky borrower, not a savvy lendee. Instead, look for a card that offers a lower range of APRs or , if you plan on carrying a balance. But with average interest rates currently hovering , it’s smarter to pay off your balances each month and instead look for a card that . After you re approved
Taking out a new loan, no matter what type, affects your credit score in another way, too. Once you undergo the underwriting process for your mortgage or activate your new credit card, the new account will appear on your credit report and impact another factor: average age of accounts. “In both FICO and VantageScore’s credit scoring systems, the effect of the inquiry is the least important of all of the scorable metrics,” says John Ulzheimer, credit expert, formerly of FICO and Equifax. “The one right above it is the average age of your accounts.” If you add a new account or multiple new accounts to your credit report, then the average age of your accounts will inevitably shorten. “That, actually, can have a much bigger impact on your credit score than a remote inquiry that may or may not be appearing on all of your credit reports,” Ulzheimer says. Still, this shouldn’t stop you from taking out a loan. Continue making consistent, timely payments towards the loan over time and refrain from taking on multiple new accounts within a short amount of time. Other factors, like and credit utilization ratio, still account for higher percentages of your overall score and can help you keep a healthy score. Prepare your credit in advance
Before taking out a large loan, take time to evaluate your financial health as a whole. Are you prepared to take on a large loan? Do you have a plan to pay it off over time? What effects may this new debt have on your ? “Knowing how much you make, and how much you usually spend, will give you a good idea for what you can afford in terms of this new payment,” says Scott Newhouse, financial planner and founder of Forthright Finances in Thousand Oaks, California. “And given that these payments go on for years, it’s even more essential to know that you aren’t spending beyond your means.” If you’re taking out a loan that has long-term consequences, like a mortgage, you should also ensure your credit is in top form and not apply for a new credit card or buy a car within a few months of applying for the loan. You’ll want the best rate possible on a loan that you’ll carry for the next few decades, and shouldn’t risk it for these shorter-term commitments. Practice to ensure your credit score is healthy: make timely payments in full each month on each of your open accounts, maintain a at or below 10 percent and keep from applying for several accounts at once. Ultimately, though, a single hard inquiry will have negligible, if any, effect on your credit. Any effect it may have is temporary and shouldn’t be concerning if you’re starting out with a great credit score anyway. “While inquiries can have a negative affect on your credit, I wouldn’t sweat them too much,” Newhouse says. “Don’t get inquiries needlessly, but don’t overly fret if you have to do an inquiry.” SHARE: Kendall Little is a personal finance writer who previously covered credit card news and advice at Bankrate. Kendall currently is a . She is originally from metro Atlanta and holds bachelor’s degrees from the University of Georgia in both journalism and film studies. Before joining Bankrate in August 2018, Kendall worked in digital communications throughout various industries, including education, health care and television. Related Articles