Rate Shopping and Credit Scores

Rate Shopping and Credit ScoresWhen you’re shopping around for mortgage, student or auto loan, you want to get the best rate – and you should. Understanding how shopping for rates affects your Fico score is crucial, if you don’t want to hamper your score in the process.

Fair Isaac (the developer of FICO) recognizes the importance of rate shopping, and has built into the Fico formula mechanism that allow you to do rate shopping without impacting your score. 

This Rate Shopping Mechanism defines a time period, in which you can get as many rate offers from different lenders as you want without this impacting your credit score.

In the old version of Fico, this time period was 14 days. In the new version of Fico (Fico 08) you have 45 days to do rate shopping.

How does this Rate Shopping Mechanism works?
There are two main rules you need to pay attention to:

  1. Fico score ignores mortgage, student and auto loan inquiries made in the 30 days prior to scoring. This means that any inquiries made by lenders while you’re in the process of rate shopping – have no effect on your credit score.
  2. All mortgage, student and auto loan inquiries made during the defined rate-shopping period (45 days in the new Fico formula or 14 in the old one) will be counted as a single inquiry. This means that even after you’ve finished your rate shopping, your score will not plummet because of multiple inquiries.

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