Many people are surprised to find that shopping around for credit can actually hurt their credit scores. But when interest rates vary so widely and thousands of hard-earned dollars are at stake, doesn’t it make sense to be sure you’re getting the best deal possible? Of course! That’s why everybody needs to know when and how to go about shopping for credit.

First of all, there are two types of credit inquiries: hard and soft. Hard credit inquiries are formal requests by financial institutions to see your credit information, and they can stay on your credit report for up to two years. These are the inquiries that can have a negative impact on your score when not done in moderation. Looking for new credit can equate with higher risk, and remember the entire credit scoring system is based on how much of a risk you are.

Soft credit inquiries are an informal request for a report that are not tied to an extension of credit. These types of inquiries are most common when a consumer pulls their own credit, a potential employer pulls a credit report or an insurance company wants to review your credit history. Soft inquiries will NOT have a negative impact on your scores.

But what if you need a major loan and want to get the best deal? Is there a way to shop around without harming your credit?

The answer is not exactly.

When you need to take out a loan, a hard credit inquiry is your only option, it’s almost always worth the dent in your credit score to get a better overall deal. Specifically when you are looking to apply for a Mortgage, Auto or Student loan you can minimize the impact on your credit score by shopping around in a 2 week period. Depending on the scoring model being used an inquiry made to your report will not count for the first 30 days, this is known as bypassing. After 30 days the inquiriy will be placed on the report and factored into the scoring. Luckily again for you inquiries for Mortgage, Auto or Student loans made in a 45 day period will be combined and only count as one inquiry toward your score, this is known as collapsing.

Want to find out more about how to intelligently shop for credit? We’d love to help!