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You’re a smart consumer and that means you know it’s important to compare rates and offers from multiple lenders before you settle on a new loan or credit card. There’s just one problem: You’ve heard that having your credit checked can damage your credit scores.

Is it possible to get the best deal for financing without hurting your credit scores? Thankfully, the answer is yes.

You can often shop for credit without damaging your scores. You just need to know the rules and understand how hard credit checks can potentially impact your credit rating.

What are hard inquiries?

When one of the credit reporting agencies – Equifax, TransUnion or Experian – grants someone access to your credit reports, it adds a record to your credit report. That record is called an inquiry.

Hard credit inquiries generally occur when you apply for new credit or services – such as a loan, credit card or mortgage. Hard inquiries differ from soft inquiries, which can occur when you check your own credit. Other examples of soft inquiries include a lender sending you a preapproved offer or one of your existing creditors checking your report for account maintenance purposes.

How hard inquiries can affect your credit scores

While soft inquiries will never damage your credit scores, hard inquiries can potentially have a negative impact. However, any impact is typically small.

The reason hard inquiries might hurt your scores is because research shows that opening several new credit card accounts in a short time period can be a sign of increased credit risk. “People with six or more inquiries on their credit report can be up to eight times more likely to declare bankruptcy than people with no inquiries,” according to FICO.

There are many misconceptions when it comes to hard credit inquiries. Some people mistakenly believe that each hard inquiry will deduct a certain number of points from their credit scores. But that’s not how credit scoring works.

Instead, certain actions cause you to earn fewer points. But not every hard inquiry will cause this.

You can think of credit scoring and inquiries like a series of prize chests in a video game. If your credit report shows that you have zero inquiries, you would open Chest A and receive the maximum number of points available. If your credit report shows one or two inquiries, you might open Chest B and receive a lesser number of points. Chest C would contain even fewer available points if your report shows, say, three to five inquiries.

The number of inquiries featured on each hypothetical chest above is purely for illustration purposes. Yet, it helps get across the credit-check scoring concept. You are awarded points based upon the total number of hard inquiries present on your credit reports. Each individual inquiry doesn’t have its own points value.

One thing is certain: The fewer hard inquiries on your credit report, the higher your credit score could potentially climb.

How long do hard inquiries impact your credit scores?

Even if a hard inquiry does inflict some damage to your credit scores (which isn’t a given), it probably won’t affect your credit for very long. In general, hard inquiries remain on your credit report for 24 months. However, they are only factored into your FICO Scores for 12 months.

This means once 12 months have passed from the date of a hard inquiry, it will no longer have any impact on your credit scores. Compared to the seven-plus years most other negative information can remain on your credit report, 12 months is a short period of time.

Rate shopping exceptions

Although there’s a chance your credit scores might be impacted negatively by hard inquiries, there is an exception to this rule. Your credit score won’t be dinged by so-called rate shopping.

Shopping around for the best rate possible isn’t the same as applying for five new credit card accounts in a month. Rate shopping doesn’t indicate increased risk. Rather, it shows the responsible financial behavior of someone who wants to make sure he or she is getting the best deal available for financing.

Scoring models recognize that rate shopping isn’t the same as trying to open a large number of new accounts at once. For this reason, FICO scoring models will treat all hard inquiries during a 45-day period as a single inquiry, within these following categories:

  • Mortgage applications.
  • Auto loan applications.
  • Student loan applications.

These inquiries will show up on your credit reports multiple times, but FICO will only count them once. This gives you the freedom to compare loan offers and make sure you’re signing up for the best deal available.

Your best strategy when it comes to credit checks

The most important thing to remember when it comes to credit checks is that requesting your own personal reports will never damage your credit scores. You could check your reports three times a day if you wanted, and it wouldn’t hurt your scores.

In fact, you should be checking your credit reports often. Keeping an eye on your credit reports is the best way to detect fraud and errors, if and when they occur. Plus, by frequently reviewing your credit you may feel better equipped to improve your scores (or maintain the good scores you already have).

There’s also no need to be afraid to apply for new credit when you need it. You probably shouldn’t apply for every new credit card offer that lands in your mailbox to chase a sign-up bonus (though strategic use of attractive offers are fine). But it’s OK to apply for new credit when doing so can save you money or otherwise improve your life.

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