Does Comparison Shopping Hurt Your Credit Score? No!
For years, a major concern for students who wanted to shop for a private student loan was that their credit score would be hurt if they applied to multiple lenders.
Lenders use a combination of information obtained on the student’s and co-signer’s credit report and their FICO scores (provided by Fair Isaac Corporation) to determine the rates and term a borrower receives. However, the FICO score is based, in small part, on the total number of inquires to a borrower’s credit report.
The dilemma for students was that in their quest to find the lowest rate, they faced a potential risk that accumulating inquiries from each lender might ding their FICO score, possibly resulting in worse loan terms. Ron Lieber laid out the details of this concern in a thoughtful article in the New York Times.
FICO Scores are No Longer Hurt by Shopping
Fortunately, this problem has since been solved by Fair Isaac, who has introduced “de-duplication” logic to the FICO score, the details of which can be found on their MyFICO website.
FICO has now put private student loans in the same category as mortgages and auto loans, giving them special “shopping protection.” As long as a lender has tagged their credit inquiry as a student loan, FICO will de-duplicate any student loan inquiries made within the prior 30 days.
The bottom line is that as long as a student has done their shopping with a 30 day period, there should be no impact on their FICO score and thus no impact on their loan terms.
Comparison Shop and Save Money
So what does this mean for you? You are now free to compare the rates and terms from multiple lenders without worrying about harming your credit score. We always recommend that you comparison shop for private student loans, as the rates that you’ll get can vary greatly between the various local and national lenders.
By shopping around for the best rates and terms, you can save yourself thousands of dollars in interest payments over the life of the loan. Just make sure to do an apples-to-apples comparison of the key terms – especially your estimated total cost and monthly payments – and don’t forget to follow our 6 tips for choosing the right lender.
The Student Loan Marketplace makes this process even easier for you by displaying the rates and terms from multiple lenders side-by-side – without making you fill out a lengthy at each lender’s website. You can use the Marketplace to figure out which loan fits you best, and save yourself some time and money in the process!