Did you know that the majority of lenders use your FICO score when determining your ability to manage money? If you're considering getting any type of loan (personal, home, even auto), that's important information to know, as you'll have a better understanding of the judging criteria and how actions affect your score, like rate shopping.

Let's say you're shopping for a mortgage or are looking to refinance. By knowing FICO's rate-shopping window, you can get multiple quotes while protecting your score. That means you're able to compare several offers to ensure you're selecting the most competitive terms while protecting your financial health; a borrower win-win!

Traditionally, your FICO Score 5 was the score mortgage lenders reviewed the closest, but FICO Score 10 T is gaining steam to succeed it as the number-one score for the mortgage industry.  

Here's what you need to know about FICO's rate-shopping window and how your score is affected by credit inquiries.

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How Is a FICO Score Calculated?

According to myfico.com, FICO scores are used by 90% of top lenders, as the score is considered to be a reliable and accurate representation of whether or not a borrower can handle on-time repayment.

Therefore, it's likely your potential lender will pull your FICO score. If you don't know what factors make up that score, you're not able to protect it, so before we get into rate-shopping timelines, let's take a quick look at what makes up a FICO score.

  • Payment history: 35%
  • Amounts owed: 30%
  • Length of credit history: 15%
  • Credit mix: 10%
  • New credit: 10%

As you can see, payment history and amounts owed together make up the bulk of a score, which means those are two key areas you should be focusing on when it comes to building or protecting your rating.

Your FICO Score 5 is the one that mortgage lenders look at

Soft vs. Hard Inquiries

An important aspect of rate shopping is a credit inquiry. A lender is "inquiring" about your credit, which can be done in one of two ways: a soft credit pull or a hard one.

A soft credit pull or inquiry does not affect your FICO score. What's a soft credit pull? Viewing your own credit report is an example of a soft pull that will not impact your score, as is a potential employer pulling your credit as part of a screening process.

A hard credit pull, however, can affect your rating. Examples include applying for a home loan or requesting that your credit card company increase your limit. It's important to understand the type of credit inquiry a company will perform so that you can protect your FICO score.

Distinguishing hard inquiries.

An important element to understand when it comes to rate-shopping windows is that FICO can distinguish between different types of hard inquires; not all hard credit pulls are treated the same way! Let's explore.

Let's say someone is looking to open multiple credit cards (new credit) and has several hard credit inquiries performed in a short amount of time. Since it's possible that a person wants to open several accounts, that could result in multiple inquiries on a score, which will cause it to drop.

Now let's say someone is looking to get a mortgage and contacts several lenders for quotes. They're not looking for multiple mortgages; just one single loan. The FICO scoring model is able to identify that and, as a result, the score will take less of a hit because those hard credit pulls can be treated as just one inquiry, provided they fall within a certain timeframe.

That's great news for borrowers looking to compare their offers, as it allows them to explore more options without having to worry that their FICO score will take a drastic hit.

FICO Rate-Shopping Window

Don't take FICO's ability to distinguish between different hard inquires to mean you have all the time in the world to find a mortgage. There is a specific window of time that those inquiries can count as one.

When it comes to wanting to obtain a single loan, like a mortgage or auto loan, FICO doesn't factor in inquiries made in the 30 days prior to scoring. That means that if you find a loan within 30 days, those inquiries will not be treated as separate pulls.

But what about outside of those 30 days? If there are inquiries outside of this window, FICO can count them as one, provided they meet a few conditions. Older versions of the FICO score-calculating formula have a rate-shopping window of 14 days, while newer versions have a 45-day span.

It's important to note that the lender chooses which version of the FICO scoring formula it wants the credit agency to use.

So be sure to keep those lines of communication open with every lender you're chatting with, as you may mistakenly believe you have 45 days to shop around when you only have 14.

Focus Your Efforts

Given all of this information, what's the best piece of advice when it comes to rate shopping? Conduct all of your shopping and comparisons within a set amount of time, no longer than 30 days if you can.

That means that you shouldn't start contacting lenders until you're ready to speak with multiple. Don't push your rate-shopping window to its limit; consider allotting just two or three weeks and be sure you know which scoring model a lender is using so that you can complete all of your inquiries within the appropriate amount of time. Otherwise, you risk multiple hard credit pulls, which could drastically lower your score.

When it comes to purchasing a home or refinancing, there's already a lot on your plate. Contacting numerous lenders within a few weeks in addition to all that you already have going on sounds overwhelming, right? Not with help from Lendgo! This free-to-use platform connects borrowers to mortgage lenders who want to work with them. Instead of searching for home loan providers and completing paperwork on multiple sites, lenders come to you.

Are you ready to see what offers await you? Easily find providers and compare offers so that you can secure competitive mortgage rates, all while protecting your FICO score!

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