Shopping for New Credit

Consumers should be ready a head of time before applying for new credit. First thing is first, pull your credit report. Do this at least 60 days before you plan to apply for the new credit. Make sure there is no errors contained in the credit report that need to be fixed first. If there is a problem you want to dispute direct with the Credit Reporting Agency and contact the creditor directly to make them aware of the problem, so they will be ready when the Credit Reporting Agency forwards them the dispute from their direction. If you have supporting documents showing you paid that auto loan off, then send copies only to the Credit Reporting Agency & the creditor. Let them know that you are trying to apply for a major loan and that this incorrect information can possibly affect a negative interest rate, or worse cause a denial of credit. Ask them to rush processing of the update to your credit report.

Once you have a corrected credit report, pull a fresh copy of the report from Experian, Equifax, and TransUnion with credit scores. You want over 720 to be considered in prime rate range. The lender might require a lower score, but I have notice that there is a 50 to 100 point difference and what you thought was a 720 might actually be a 620 score on the report that they eventually obtain. If you don't have above 720, you might consider waiting to apply for that loan until you can build the score up higher. It is well worth waiting to be approved prime range instead of continually getting approved for sub-prime range. Just seeing sub-prime lenders on your credit report might biased the new creditor from approving credit with them in particular. If you are satisfied with your score, take a copy of the credit report to the lender you will be applying for. Show them your copy of the credit report first! Ask them to judge the score and tell you if it is good enough for the loan you want. If it is not, then you saved yourself an inquiry on your credit report.

If the lender says that they like your consumer score, they will need to pull a credit report to seal the deal. This will cause an inquiry that will affect the credit score for up to one year, but it will continue to show on the credit report for up to two years. Inquiries and the opening of new accounts affect 10% of the overall credit score.

There are some special rules for inquiries. If you are shopping for an auto loan, then all inquiries pulled within a 30 day period of time will be suppressed from affecting the score for 30 days. If it is a mortgage loan all inquiries made within 14 days will be counted as just one inquiry, besides that they will be suppressed from affecting the credit score for 30 days. It is important if you are shopping with multiple lenders to do your research on who you want to check out, and apply for all companies within two weeks or less for auto and mortgage loans. If you are applying for a mortgage loan, it is important that you don't waste time applying for credit cards before you obtain the mortgage loan. That might affect the approval of the mortgage if they see you shopping for other types of credit.

If you are declined credit, then you are entitled to a free copy of your credit report from Experian, Equifax, and TransUnion. If you find further errors in the reporting that affected the approval. You can dispute with the Credit Reporting Agency and the company that was responsible for the negative reporting. If you can get the error corrected, then ask the Credit Reporting Agency to please forward an updated copy of the credit report to the company you just applied with, so they can view changes and reconsider approval on the loan. This is another way to save on re-applying and causing further inquiries.

Keep new applications for credit down to 3 or 4 per year so you don't look like you are over shopping for credit. Be sure to check credit reports often to insure that all of the accounts showing up on your credit reports are accounts you solely applied for. Be pro-active in your credit, be educated before you apply for new credit and you should do just fine.