The 30 Day Rule

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Shopping for a new loan is sometimes a stressful process. Filling out applications, meeting with bankers, comparing rates – it starts to seem really tedious and intimidating, and sometimes makes you wonder how badly you really want that new house or car.

To add a little extra complexity (and anxiety) to the task of securing financing, a lot of people don’t realize that the actual process of looking for a loan could end up making it harder to get said loan. Why? Because if you’re not careful, your search for a loan could be damaging your credit score – which in turn, makes it harder to get a loan. Mind boggling, right?

The good news, though, is that as long as you keep a few tips in mind when you’re going through the steps of securing financing your credit score won’t take a hit. Check out the information below for more details:

Getting A Loan, Hurting Your Credit – What?

First, let’s address how it’s possible that getting credit can hurt your credit. The answer to this question comes from how your credit score is calculated: 10% of your credit score is determined by new credit and new credit inquiries, and the fewer of each, the better. If you start applying for a bunch of loans over the course of a few months, the major credit bureaus will interpret this as poor credit behavior. They’ll assume you’re recklessly trying to buy a bunch of new things, or that you’re having financial hardships that are forcing you to rely on credit. So what’s a loan shopper to do? Read on for the answer.

Observe The Thirty-Day Rule

If you’re looking for a new loan, it’s important to put in all your applications within a 30-day period. This is because credit inquiries made within a 30-day time span are interpreted by the credit bureaus as separate inquiries for the same loan. In other words, if you look within a 30-day timeframe it will be understood that you’re looking for a the best interest rate and terms on a loan, not that you’re going nuts trying to obtain all the credit you can. Using this strategy will have a minimal impact on your credit score – your digits might drop by a few points, if any, and the dip will be temporary.

Tips For Following The Thirty-Day Rule

The best way to go about following the 30-day rule is to get organized. Have all of the potential banks you’d like to work with vetted and make it a priority to get all your applications in order and submitted within a couple of weeks of deciding to take out your loan. This way, if the terms the lenders you submit applications to aren’t favorable, you still have a couple weeks to send out more before your 30 days are up.

Be careful not to do damage to your credit score right at the moment you need credit the most – follow the advice above to be sure that obtaining your next loan doesn’t get any more difficult than it has to be!

About Paul Knag

Paul Knag is a former executive for American Home Mortgage and founder of online lender He founded in 2007. Paul lives in New York with his wife and children.

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