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Will Rate Shopping Online Hurt My Credit Score?

Aug. 26, 2016
Credit Score, Personal Finance
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These days, it seems like there’s nothing you can’t do online. For example, if you’re in the market for a loan, you may be doing your rate shopping online to see what kind of terms you qualify for.

But does this affect your credit score? The answer is: It depends.

Soft versus hard credit checks

First, let’s go over the difference between soft and hard credit checks. This is the key to understanding how rate shopping online will affect your credit.

A soft credit check (also known as a soft inquiry or soft pull) is commonly done by banks and other businesses when they’re trying to sell a product that’s credit-dependent, like a new credit card. The lender or salesperson will review the basics of your credit profile to get a sense of where you stand and if you’re a good fit for their product. When you review your own credit information that’s also a soft inquiry.

A hard credit check (also known as a hard inquiry or pull) is performed by a potential lender when you’re applying for a loan. In this case, a banker has probably accessed your credit score and credit report for careful review, and a hard inquiry mark will land on your credit report.

However, just because you’ve started the loan application process online doesn’t necessarily mean a hard credit check has been done yet. By asking for basic details like your name, address, occupation and income on a preliminary application, online lenders are able to perform a soft credit check and estimate the rate you’d qualify for. If you like it and want to proceed with the application, a hard credit check will be done later.

Here’s good rule of thumb: If you’re providing your Social Security number to a potential lender, assume that a hard credit pull is coming. Until that point, any rate offer you’re receiving is usually based on a soft credit pull.

Only hard credit checks affect your score

Soft credit checks have no effect on your credit score. If you’re weighing your options based on estimated rates from soft pulls on preliminary applications, feel free to complete as many as you want.

However, when you get deeper into the loan application process and a bank (online or brick-and-mortar) performs a hard credit check, you credit score will be affected. Usually, this means losing a few points from your score, but it’s the only way to get a definitive answer (not just an estimate) about what the terms of your loan will be. If you have good credit to begin with, you’ll probably get those lost points back within six months.

It’s also worth noting that not all hard credit inquires are created equal. Applying for several loans of the same type within a 14- to 45-day window is interpreted by the credit bureaus as low-risk behavior. They know that you’re just looking around for a good rate and will usually only count this as one inquiry.

On the other hand, applying for several credit cards in a short time frame is seen as an indicator of serious financial risk. Your credit score could take a big hit as a result, so it’s important to space out your credit card applications by about six months. If your credit is poor, you might want to wait a little longer.

Top tips for rate shopping online

It’s important to be careful when you’re rate shopping online. To get the best deal and keep your credit score intact, use these tips:

  • Before you enter any personal information onto a loan application website, read the page carefully. If it says something like “your credit won’t be affected” or “check your rate without hurting your credit,” you can assume a soft credit check is being performed.
  • If it’s not clear from the site how your application information is being used or why it’s being collected, call the lender’s customer service line and ask before you provide it.
  • Remember, the interest rate offer you receive after a soft credit check might not be the exact one you eventually get if you decide to go ahead.
  • If you reach a point in the online application process where you need to put your Social Security number into a site, be sure the site’s URL is preceded by “https.” This indicates the site is secure. The site should also offer information about its security and encryption protocols.

This article was updated Aug. 26, 2016.

Couple checking interest rate image via Shutterstock