Rate shopping and your credit scores

Young couple looking at blueprints and a computer to find the best rate for a mortgageImage: Young couple looking at blueprints and a computer to find the best rate for a mortgage

The best part about credit scores seems obvious. When it comes to interest rates, rewards and lending terms, your good credit score can potentially save you money. According to research carried out by Credit Karma in 2023, it could save you, on average, over £5,000 in interest over a lifetime’s borrowing across credit cards, loans, mortgage and car finance. What more do you need to know?

Many worry that shopping around for the best rates will adversely affect their credit scores. If a prime benefit of having a good credit score is potential savings, but shopping around for the best deal on a loan will hurt your credit score, then what’s the point?


So will rate shopping hurt my credit score?

Shopping around doesn’t need to negatively impact your credit score, if you do your research. 

You probably know that each time you apply for a new line of credit you’re normally hit with a hard search. In most cases, a single hard search is unlikely to play a major factor in whether you’re approved for a new credit card or loan. But multiple hard searches in a short period could lead providers to think you’re in financial trouble.

You can reduce the negative impact on your credit score if you’re smart about where you shop. Price comparison websites, some lenders and services like Credit Karma can help you compare rates for financial products by carrying out an eligibility check, or soft search, when you provide your details while searching for credit offers. Soft searches will never hurt your credit score, and they can’t be seen by other lenders, so it’s a good way to compare rates for the best deals for you.

You’ll still get a hard search when you decide to apply for a credit product, but doing your homework in this way can keep the number of hard searches to a minimum – and protect your credit score.

What else can I do?

Your credit scores can play a big role in your financial life. So taking the time to build your scores can help improve your chances of being approved for the financial products you want.

Before having a bunch of lenders run searches on your credit, do some research on your own. This way you can narrow down your choices before you start applying and your credit is searched.

Another tip that could keep your credit score from dropping is to only apply for one type of credit account at a time. For example, if you’re in need of a mortgage, you may want to wait until later to get yourself a new car and the accompanying car finance. Attempting to secure too much credit at one time may give lenders the impression that you’re desperate for cash or unprepared to handle your debts responsibly.

More generally, it’s best to go into the process with your credit health in great shape. Knowing that a few hard credit searches might dip your score a bit, prepare yourself by otherwise checking that your credit report is spick-and-span and ready for a little bit of a stress test. Monitor your credit and dispute any inaccuracies beforehand to help get you in the best position to get a great deal.


Bottom line

Too much hunting around when using hard credit searches for the best terms on a new line of credit can be harmful to your credit score. However, if you go about the process responsibly, you can achieve the benefits of comparison shopping without causing undue damage to your credit profile. All you have to do is be cautious and shop wisely.