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Rate Shopping: How to Get the Best Mortgage Rates Without Hurting Your Credit

When it comes to securing a mortgage, getting the best possible terms is crucial. Rate shopping is a smart strategy to ensure you land the most favorable interest rates and terms. However, many people worry about the impact of rate shopping on their credit scores. In this comprehensive guide, we’ll explore what rate shopping is, how it affects your credit, and how you can shop for the best mortgage rates with minimal impact on your credit score. And remember, for any mortgage service needs, you can always call O1ne Mortgage at 213-732-3074.

What Is Rate Shopping?

Rate shopping is the process of comparing interest rates, fees, and other terms from multiple lenders to secure the best possible deal on a loan or credit card. This practice can lead to significant savings over the life of a loan or credit card account. However, if not done correctly, rate shopping can temporarily reduce your credit scores. Understanding the relationship between rate shopping and credit scoring can help you navigate this process with minimal impact on your credit.

What Is an Inquiry?

In the context of your credit, an inquiry is a credit check performed by a lender to evaluate your creditworthiness. There are two types of inquiries: hard and soft. Each type has different consequences for your credit scores.

Hard Inquiry

A hard inquiry occurs when you apply for credit, and a lender reviews your credit report to decide whether to issue you a loan or credit card. This type of inquiry can trigger a small, temporary reduction in your credit scores. Multiple hard inquiries in a short period can have a cumulative negative effect on your credit scores.

Soft Inquiry

A soft inquiry occurs when a lender or other authorized entity checks your credit report for informational purposes not directly related to an official credit application. Examples include prequalification checks and you checking your own credit report. Soft inquiries have no effect on your credit scores.

Does Rate Shopping Hurt Your Credit?

To accommodate rate shopping for installment loans such as mortgages, auto loans, and student loans, credit scoring systems like FICO and VantageScore treat multiple hard inquiries within a narrow time frame as a single event. This means that if you submit multiple loan applications within a specific period, it will only count as one inquiry on your credit report.

FICO Score

With current versions of the FICO Score, the time window for rate shopping is 45 days. Some older versions have a 14-day window.

VantageScore

VantageScore uses a rolling two-week window. If you submit a series of loan applications within two weeks, VantageScore will treat them as a single inquiry.

Credit Card Applications

Credit scoring systems do not treat inquiries related to credit card applications as a single event. However, you can still rate-shop for credit cards without incurring multiple hard inquiries by using the prequalification option available from many card issuers. Prequalification provides an estimate of the borrowing limit and interest rate without causing a hard inquiry.

Tips for Effective Rate Shopping

Here are some tips to help you rate shop effectively without significantly impacting your credit scores:

• Submit all your loan applications within a 14-day period to minimize the impact of multiple hard inquiries.
• Use prequalification options for credit cards to get an idea of the terms you can expect without triggering a hard inquiry.
• Maintain timely bill payments to help your credit scores recover quickly from any temporary dips caused by hard inquiries.

The Bottom Line

Rate shopping is a smart practice that, when done carefully, has only a minor temporary impact on your credit scores. By submitting all your loan applications within a short time frame and using prequalification options for credit cards, you can secure the best possible terms without significantly affecting your credit. For any mortgage service needs, don’t hesitate to call O1ne Mortgage at 213-732-3074. Our team of experts is here to help you find the best mortgage rates and terms to suit your needs.

Ready to get started? Contact O1ne Mortgage today at 213-732-3074 and let us help you navigate the mortgage process with ease and confidence.

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