A Credit-Shopping Spree
One way to quickly damage your credit is to shop for credit. Every time you submit a credit application, the prospective lender pulls your credit and creates an inquiry on your credit reports. It's important to manage the creditshopping process and minimize the damage to your credit.
You should not let your fear of inquiry-damage limit your comparison shopping. You can save a lot of money on big-ticket items by getting a better loan. The key is to shop rates within a short period of time. The people who design credit-scoring models realized that shopping loan rates before making a major purchase is actually a good idea. As a result, mortgage and auto loans get special treatment.
This is one of those catch-22s in life. It is important to get a good rate on any loan you are considering. The best way to make sure you are getting a good rate is to compare rates among various lenders. However, the more you compare, the more inquiries you have on your credit reports.
According to Fair Isaac, the FICO credit score ignores all mortgage and auto-loan inquiries made within the last thirty days. So, if you make your purchase within thirty days of your first inquiry, your credit should not be affected. What about after thirty days? It's not like you'll never get another loan. Outside of the previous thirty days, the FICO model treats all mortgage and auto loan inquiries made within fourteen days of each other as one inquiry. The newer FICO scoring models are even more forgiving: they extend the fourteen day period to forty-five days (there are different FICO models out there being used by different companies).
If you fail to keep your inquiries within a short period of time, your credit will suffer. Consider a shopper who compares rates over several months. In addition to being extremely thorough and well-prepared, this person is damaging her credit. Undoubtedly, her score will be lower, and the loan less favorable, on her last inquiry than on her first inquiry.
