Painless Credit Repair

Have you ever applied for a mortgage loan or a car loan and had your loan officer or your sales representative tell you not to apply with any other companies because this could lower your credit score and then you may not be able to qualify for the rate you are being quoted? Is there any truth to this? Can you really be penalized for shopping around with multiple lenders? How can this be? Read on to find out the real truths about credit inquiries and how they affect your credit.

Credit inquiries do account for approximately 10% of your total credit score. This means that out of a maximum credit score of 850, that credit inquiries alone have the ability to account for up to 85 points of your credit score. This can be a large percentage of your credit score, especially if you already have borderline credit. A lot of credit inquiries against your credit can have a very negative impact on your credit score.

So why are you penalized for having a lot of credit inquiries against your credit? The reasons are simple. If you have a lot of credit inquiries against your credit, and especially in a very short time, it means that you are out shopping for a lot of new credit and obtaining more debt or you are being turned down for a lot of new credit and you are desperate for credit. Either way, a lot of new credit in a short period of time is not good for your credit score, because these new accounts will have no established credit history and being turned down for new credit means that you have other deficiencies that are not permitting you for being approved for new credit.

So by shopping around between multiple lenders and trying to obtain the best financing you can for a house or a car loan, are you penalized by the credit bureaus? Yes and no. What I mean by this is that when you are shopping for an auto loan or a mortgage loan you have a 30 day window to shop around with multiple lenders and all of the credit inquiries will only count as one inquiry against your credit score. The 30 day window begins on the first day that you have your credit pulled and all of the inquiries need to be for the same type of financing to only count against you as one inquiry. For example you can not go out and apply with 2 auto loan companies, 2 mortgage companies and apply for a new credit card within and 30 day window and have them count only as 1 inquiry. This would count as 3 inquiries, 1 for the mortgage, 1 for the auto, and 1 for the credit card. The newest credit scoring models are even starting to allow for a 45 day window for shopping around because they realize that 30 days is not always feasible to obtain your financing within.

Therefore, by applying for a lot of new credit your credit score can be penalized. However, when shopping for big dollar items such as a car or a home, simply make sure that you do all of your rate comparisons and lender shopping within that 30 day window beginning on the first day that a lender pulls your credit. More information on credit, credit scoring and credit inquiries can be found at the Your Credit, Your Life Credit Blog.

The author of this article, Dave Zwierecki, is the President of First Security Financial Service and has over 10 years of experience in the credit, mortgage lending, and home improvement fields. He is the owner of http://www.GoFirstSecurity.com and http://www.TheMortgageU.com, which are both sites devoted to the education of consumers regarding real estate, mortgage, credit, and home improvement related material.