Do Multiple Mortgage Applications Hurt Credit?

If you are thinking about taking out a loan to buy a home, you might be wondering whether multiple mortgage applications will hurt your credit score? We will discuss the answer to this question in much detail below.

Do Multiple Mortgage Applications Hurt Your Credit?

Although multiple mortgage applications can hurt your credit score and lower it, applications made within a 14 to 45 day window while shopping for a mortgage will be counted as a single hard inquiry, only slightly lowering your credit score. Hard inquiries appear on your credit report whenever you're applying to borrow money and they remain on your credit report for 2 years from the date the lender reviews your credit report. Hard inquiries can slightly lower your credit score (by only a few points). That said, the credit reporting bureaus understand that many consumers shopping for home loans will apply with several lenders while seeking to obtain the largest loan amount at the best interest rate. Therefore, any inquiries incurred within a 14 to 45 day windows count as only one hard inquiry, slightly lowering your credit score.

Typically, when you go to a mortgage broker, the mortgage broker will apply for several home loans on your behalf. Each time a mortgage provider checks your credit, a separate hard inquiry will be added to your credit report. Each hard inquiry can lower your credit score by a few points. However, the credit reporting bureaus offer special treatment to those shopping for a mortgage, and therefore any hard inquiries placed while shopping for a home loan will only be counted as a single hard inquiry provided that they are made within a 14 to 45 day period, depending on what scoring model is used to calculate your credit score.

Hard inquiries can lower your credit score because they account for 10% of your credit score. The more hard inquiries you have on your credit report, the lower your credit score will be. Hard inquiries remain on your credit report for 2 years from the date that a mortgage lender reviews your credit report. After the 2 year period, they're automatically removed from your credit report. Experts agree that the impact of hard inquiries on your credit report begins to lessen as the hard inquiry ages. After 12 months, a hard inquiry should have no impact on your credit score.

The 14 to 45 Day Window

When shopping for a mortgage, most people shop around for the best mortgage. So, any mortgages that you apply for within a 14 to 45 day period are treated as a single hard inquiry on your credit report. The 14 to 45 day period depends on which credit scoring model that's used to calculate your credit score. Different models use different periods during which to county hard inquiries as a single hard inquiry. Typically, the newest scoring models count hard inquiries when mortgage shopping within a 45 day period as a single hard inquiry, offering shoppers some leeway when it comes to finding the right mortgage. So, when you're applying for 1 mortgage or applying for 10, all of the hard inquiries you rack up within a 45 day period are counted as a single hard inquiry when calculating your credit score.

Proceed With Caution

The 45 day mortgage shopping window only applies when shopping for home loans and auto loans. It does not apply to credit card applications. If you want to open a credit card and submit multiple credit card applications, each application counts as a single hard inquiry. So, if you submit multiple credit card applications, the 45 day grace period does not apply and each hard inquiry will lower your credit score, so please proceed with caution. So, if you submit too many credit card applications within a short period of time, you can significantly lower your credit score because each hard inquiry counts as a single inquiry, lowering your credit score. This is different from home loan applications where multiple hard inquiries are grouped into a single hard inquiry.

Should You Submit Multiple Mortgage Applications?

As previously mentioned, no matter how mortgage applications you submit within a 45 day period count as a single hard inquiry. So, feel free to shop around for mortgages, just make sure that all of your applications are submitted within a very short time frame so all applications and resulting hard inquiries only count as a single hard inquiry on your credit report. Shopping for a mortgage this way will only drop your credit score by a few points since multiple mortgage applications will count as only a single hard inquiry. When you're seeking to make a large purchase, such as a home purchase, it's wise to shop around for the best rates, so submit as many applications as reasonably necessary to obtain the loan amount and interest rate that you're looking for. Finding the right mortgage can save you a substantial amount of money, so shop around and rest assured that all applications submitted within the 14 to 45 day window will only count as a single hard inquiry.

That said, to get your mortgage applications within the 14 to 45 day period, it's helpful for you to make a list of potential lenders that you want to apply to before submitting a single application. This ensures that all applications result in a credit review within the 14 to 45 day period. Also, make a list of questions that you have for your lenders so that you can ask them and have them answered within a short amount of time.

Even if you submit applications outside the 45 day window, your credit score will not significantly suffer as hard inquiries only account for 10% of your credit score. 65% of your credit score, however, depends on your payment history and the balances you keep on your accounts. So, as long as you continue to make your payments on time and keep low balances on your credit cards and loan accounts, an extra hard inquiry is unlikely to cause much damage to your credit score.

How much does a mortgage application affect your credit score?

Whenever you submit a mortgage application and a lender reviews your credit report, a hard inquiry is placed on your credit report. A single hard inquiry can lower your credit score by just a few points. For this reason, the credit reporting bureaus treat multiple credit reviews performed for the purpose of obtaining a mortgage within a 45 day period as a single hard inquiry, only slightly lowering your credit score.

Here Are Some Things to Avoid When Applying For a Mortgage

You should avoid doing the following things when applying for a mortgage to keep your credit score as high as possible to qualify for the large mortgage amount and the best interest rates:

  1. Credit Applications - Do not submit other credit applications. Refrain from applying for auto loans, credit cards, and personal loans until your mortgage is approved and you're sitting comfortably in your new home. This ensures that no other hard inquiries lower your credit score.
  2. Do Not Miss Payments - Do not miss any payments on your credit cards, auto loans, auto finance account, personal loans, and student loans. A single missed payment can cause significant damage to your credit score. So, if you've never missed a payment, continue the good streak to ensure that you're approved for the best home loan at the best interest rate.
  3. Do NOT close accounts in good standing - If you have accounts that are in good standing because this could lower your credit score. So, even if you have a credit card that you barely use, but you've built good credit behind, you should avoid closing the account as the account closure will reduce your mix of credit as well as lower your available credit, causing a drop in your credit score. So, avoid closing accounts in good standing when applying for a mortgage to ensure your credit score does not drop.
  4. Don't add to your debt - When applying for a mortgage, you should avoid raising the balances on your credit cards and other accounts. This is so because your credit utilization (how much of your available credit you're using) accounts for 30% of your credit score. Substantially raising your credit utilization can lower your credit score, so avoid racking up more debt to keep your credit score as high as possible. If you want to improve your credit utilization, pay down some of your balance and you could raise your credit score.

Frequently Asked Questions (FAQs)

1. When submitting multiple mortgage applications, how long do hard inquiries stay on your credit report?

Hard inquiries stay on your credit report for 2 years from the date that the lender reviews your credit report. After the 2 year period, the hard inquiry will be automatically removed from your credit report. That said, experts have stated that even though it takes 2 years for a hard inquiry to be removed from your credit report, it no longer impacts your credit score after 12 months.

2. Does applying for multiple mortgages affect credit?

Yes, when you apply for a mortgage, hard inquiries are added to your credit report. Hard inquiries can lower your credit score.

3. Is it bad to apply for multiple mortgages (sending home loan applications)?

No, there is nothing wrong with applying for multiple mortgages. In fact, you should shop around for mortgages because finding the a reasonable mortgage could save you a substantial amount of money. Shopping around for a mortgage will not significantly impact your credit, as it only has a low impact.

4. How long does it take for a mortgage application to show up on your credit report?

A mortgage application shows up on your credit report as soon as a lender requests to review a copy of your credit report. The second a lender reviews your credit report, a hard inquiry will show up on your credit report, alerting you that a third party has accessed your credit report.


Does Getting Married Affect Your Credit Score?

If you're like many Americans, you probably want to get married and settle down with that special someone, however, you might be wondering whether getting married affects your credit score? We will answer this question in much detail below.

Does Getting Married Affect Your Credit Score?

No, getting married does not affect your credit score because your marital status is not included on your credit report and is not used by the credit reporting bureaus to calculate your credit score. However, after you get married if you and your spouse apply for joint accounts, joint loans, or other types of joint debt, your ability to borrow money will depend on both spouse's credit scores and the debt will affect both of your credit scores. So, it is vital that you and your spouse discuss your financial history in order to avoid surprises when applying for joint debts. This is so because if one spouse has excellent credit, but the other spouse has bad credit, the spouse with bad credit will impact both of your abilities to obtain approval for joint debts.

So, if you want to buy a home by taking out a mortgage to do so in both of your names or want to open a joint credit card, both spouses must have good credit in order to be approved. If one spouse has excellent credit but the other spouse has bad credit, this will make getting approved difficult since both of your credit scores and credit reports will be examined. This is so because when applying for joint debt, both spouses are on the hook for the debt, and so lenders want to ensure that both spouses are capable of repaying the debt on time.

Furthermore, when applying for joint debt, the interest rate will be based on the credit of both spouses. So, if one spouse has excellent credit but the other spouse has bad credit, the spouse with the bad credit could cause both parties to pay higher interest rates and fees to obtain the joint debt. Nevertheless, your odds of approval might be better if you apply jointly because the lender can consider both incomes when determining how much money they are willing to lend you.

If you're planning to buy a home with a spouse who has bad credit, you might be disappointed to learn that the home lenders look at the spouse with the lower credit score when determining whether to approve you for a mortgage. If you have excellent credit but your spouse has bad credit, you should consider having the spouse with good credit apply for the home loan on their own, but only their income would be considered by the lender. That said, you might not qualify for as large of a mortgage if you're applying without your spouse because only your income would be considered.

When you open a joint debt, such as joint credit card or joint loan, the positive and negative actions that you take will appear on both spouse's credit reports. So, before applying for joint debt, you and your spouse should discus how you're managing money in order to pay off the debt responsibly and have the joint account boost your credit scores instead of hurting them.

Does Getting Married Hurt My Credit If My Spouse Has Bad Credit?

Even if your spouse has terrible credit, his or her terrible credit will not impact your credit score. If you have good credit, your good credit will not improve your spouse's bad credit. However, if you apply for accounts jointly in the future, and either spouse fails to make timely payments on the account, both of your credit scores will suffer because when taking out joint debt, both spouses are liable for the debt, meaning if either fails to pay on time, the negative information will be reported on both spouses credit reports.

So, if your spouse has bad credit and is bad at handling finances, you should apply for joint accounts and debt cautiously. This is so because when opening a joint account, both spouses are liable for repayment of the debt. So, if you do not have the money to make the payment and your spouses refuses to assist you, your account will be reported as late, causing significant damage to your credit. So, only take out joint debts that you know you can pay off even if your spouse refuses to assist you with making the payment. This ensures that you do not damage your credit score.

Does Changing Your Name When You Get Married Affect Your Credit Score?

No, changing your name when you get married does not affect your credit score. Although when you change your name, you will have to change it with the DMV, Social Security Administration, on your accounts, and with your bank, changing your name has no impact on your credit score. That said, your previous name and your new name will appear on your credit report under the Names or Aliases section. Your new name will be added to your credit report as soon as your creditors and lenders begin updating your personal information with the credit reporting bureaus.

Sometimes when you change your name, financial institutions may report the wrong name or mix up your first name with your last name. If this occurs, you can file a dispute with the credit reporting agencies to have the wrong name removed from your credit report.

That said, you will not be able to remove your old name from your credit report as it will continue to appear on your credit report. So, if you were thinking that you would lose your credit history if you changed your name, rest assured that you will not, as your name will only be updated with the credit reporting bureaus. All you have to do for your new name to be updated with the credit reporting bureaus is contacting your creditors (credit card issuers, banks, and lenders) and the information will automatically be updated with the credit reporting bureaus.

How to Use Your Souse's Good Credit to Improve Your Bad Credit?

Although your spouse's good credit does not affect your credit, there is a way to use your spouse's good credit to improve your bad credit. You can improve your credit by asking the spouse with good credit to add you as an authorized user on his or her account. Once added as an authorized user, the good credit behind that account will appear on your credit report. If your spouse has made all of his or her payments on time and has a lengthy credit history, this will significantly boost your credit score just as if you had opened the account and made all of the payments on time.

That said, once added as an authorized user, you should use the account responsibly because if you rack up too much debt on the account and you and your spouse cannot make the credit card payments on time, this will hurt both of your credit scores. His credit will be hurt because he is the primary account holder and is responsible for the account, your credit may be hurt as well because the account will appear on your credit report too.

Frequently Asked Questions (FAQs)

1. Does being married improve credit score?

No, getting married does not improve your credit score. This is so because marriage has no impact on your credit score. Your status of married or single is not even reported on your credit report. So, if you were curious about whether getting married will improve your credit score, we are sad to inform you that it will not.

2. Will my credit score affect my partner's credit score?

No, your credit score will not affect your partner's credit score. So, if you have bad credit, rest assured that your bad credit will have no effect on your partner's credit score.

3. When you get married does your spouse's debt become yours?

No, when you get married your debt does not become your spouse's debt. For example, if you have $12,500 of credit card debt and you get married, this debt does not become your spouse's debt. You are solely liable for repaying this debt.

4. Can I buy a house if my spouse has bad credit?

You may be able to buy a house if your spouse has bad credit, however, if you include your spouse on your mortgage application, the banks will consider his or her credit. If they have bad credit, they might lessen your chances of approval.

5. Will my wife's credit score affect mine?

No, your wife's credit score has no impact on your credit score. Each person's credit file is separate. However, if you apply for any joint debt, such as a joint credit card, you both will be liable for repaying the debt.


Can I Get a Mortgage With Late Payments On My Credit Report?

If you're like many Americans, you might be thinking about borrowing money to buy a home. We often get asked whether a person can get a mortgage if they have late payments on their credit report. We will answer this question in much detail below.

Can I Get a Mortgage With Late Payments on My Credit Report?

You can still get a mortgage with late payments on your credit report, however, this depends on the strength of your credit report, the lender's lending criteria, and how much damage you've done to your credit by making your payments late. Typically, the more late-payments and the longer the delinquencies, the more difficult it will be for you to get a mortgage. If you have strong credit despite having a few late payments, lenders may still be willing to offer you a mortgage at a decent interest rate and terms.

When determining whether to offer you a mortgage, lenders will review your credit report and place great emphasis on your past payment history. Payment history is important for mortgage lenders because it shows them how you've handled paying down debt in the past, which shows them how you are likely going to handle paying down your mortgage in the future. So, the better your payment history, the more likely you are to be approved for a mortgage. This is so because people who have paid their debts on time in the past are likely going to pay them on time in the future. The opposite applies, as well.

Having a late payment will raise some red flags for lenders, especially if the late payments are recent (within the past 12 months).

Nevertheless, as late payments age, not only will their impact on your credit score lessen, but old late payments will have less of an impact on a lender's decision to lend you money. Recent late payments, however, will, unfortunately, impact your ability to get a mortgage.

If a lender sees that you have recent late payments on your credit report, they might require you to place a bigger down payment and/or you might have to pay a higher interest rate than would a lender who has never missed any payments on his or her credit cards and loans. So, when seeking to get a mortgage, you should consider all of these factors before applying.

Pro Tip - Some experts state that if you have any late payments, you should wait for at least 12 months before applying for a mortgage. This waiting period is done to establish a track record of on-time payments to encourage lenders to approve you for a home loan. Making on-time payments prior to applying for a mortgage is critical to ensure that the lender does not ask for large cash reserves, bigger down payment, or other income sources prior to approving you for a home loan. So, although you can still get a home mortgage with late payments, you may be asked for a bigger down payment or cash reserves prior to being approved. So, make your payments on time for the best chances to be approved.

How to Improve Your Credit Score & Get a Mortgage With Late Payments on Your Credit Report?

Here are a few tips on how to improve your credit score in order to get a mortgage with late payments on your credit report:

1. Make Timely Payments - Make all of your payments on all of your accounts on time. Your payment history accounts for 35% of your credit score and is the biggest factor that lenders look at when deciding to approve you for a mortgage. So, making timely payments will not only increase your credit score but will also increase your chances of being approved for a mortgage. If you have a late payment on your credit report, as the late payment ages and becomes older, its impact on your credit score will lessen and lenders will not view it as negative as a recent late payment. So, continue to make payments on your accounts and make sure that you do not make late payments for the best chance to be approved for a mortgage. Late payments will remain on your credit report for 7 years from the date you became late on your account. After 7 years it will be automatically removed from your credit report. That said, the impact of a late payment on your credit score and a lender's decision to give you a mortgage lessen as the late payment ages.

2. Reduce Balances - The second thing you can do to improve your credit score and still get a mortgage despite having late payments on your credit report is to reduce the balances on your accounts. Your credit utilization (how much of your available credit you're using) accounts for 35% of your credit score. So, a quick way to improve your credit score is to pay down the balances on your accounts. As a rule of thumb, you should strive to keep your account balances below 10% of your available credit, and to never exceed 30% utilization. If you exceed 30% of your available credit, you will notice a drop in your credit score because you're using too much of your available credit. Your credit score will drop because utilizing too much credit tells lenders that you may be having financial troubles, and are therefore relying too much on your credit cards. So, a quick way to improve your credit score and qualify for a mortgage is too pay down your accounts as much as you possibly can.

3. Makes Paste Due Accounts Current - If you have accounts that are passed due and/or reported as late on your credit report, you should make them current so that when the lender reviews your credit report, you're not behind on any payments, showing them that you're financially responsible. Additionally, making a past due account current will help your credit score because past due account can cause a significant drop to your credit score.

4. Review Your Credit Report - If you're not already in the habit of periodically reviewing your credit report, you should review it to ensure that there are no negative items bringing down your credit score. If you find an item that does not belong to you, you should dispute it to have it removed from your credit report. The dispute process typically takes a few days, but in some circumstances can take up to 30 days to complete.

How to Qualify For a Mortgage With Late Payments?

  1. Remove Late Payment - If you're wondering what you can do to qualify for a mortgage with late payments on your credit report, the first thing you should do is to contact your creditor and lender and ask them to remove the late payment(s) from your credit report. Some lenders will be willing to work with you while others will not. You will probably have more luck with this method if you have a very good payment history and relationship with the lender. If you contact a lender and the representative refuses to remove your late payment, ask them to speak to their supervisor. Supervisors have more leeway when it comes to helping customers. Be polite and explain your situation to the supervisor. You may be surprised, but this could help you.
  2. Larger Down Payment - If you want to get a mortgage to buy a home, but you have late payments on your credit report, some lenders will still be willing to work with you if you agree to make a larger downpayment. The larger downpayment shows borrowers that you are creditworthy and likely to pay your mortgage payments on time since you've invested a lot of money in your home. Also, a combination of bad credit and a small down payment doesn't play too well with lenders. So, this could be an option if you want to take out a loan to buy a home.
  3. Reduce Your Balances - Another way to show lenders that you're creditworthy and should be approved for a mortgage is to pay down the balances on your accounts. This shows lenders that you have the cash to pay your debts and shows them that you're not too reliant on credit.

Frequently Asked Questions (FAQs)

1. Can you buy a house with late payments?

Yes, you can still buy a house with late payments. However, recent late payments (less than 12 months old) will make it very difficult for you to buy a home. That said, you may still qualify for a mortgage, but the lender may require a bigger down payment.

2. Do missed payments affect your ability to get a mortgage?

Yes, late payments will make it difficult but not impossible to get a mortgage or home loan, especially if the late payments are recent. As late payments age and you make on-time payments on all your credit cards and loans, it's impact on your ability to qualify for a mortgage will lessen until the late payment is automatically removed after 7 years.

3. Can you remove late payments from your credit report?

If a late payment is valid, meaning you were in fact late, it will be difficult to remove it from your credit report. This is so because the credit reporting bureaus are not obligated to remove accurate information from your credit file. You can contact the lender or creditor and ask for it to be removed. That said, if the late payment does not belong to you, you can file a dispute with the credit reporting bureau to remove it from your credit report. The credit reporting bureau will then investigate to determine whether the late payment is indeed valid. If it's valid, it will remain on your credit report. However, if it is indeed inaccurate or does not belong to you, it will be removed.


Does a Company Credit Card Affect My Credit Score?

Whether you work at a large company and you've been given a credit card or you have your own small business and have opened a credit card, you might be wondering whether having a company or business credit card affects your credit score? We will answer this question in much detail below.

Does a Company Credit Card Affect Your Credit Score?

A company credit card can affect your credit score if you are the primary account holder on a small business credit card because small business credit cards typically require a personal guarantee, causing them to appear on your credit report and affect your credit score. Additionally, if you are an authorized user on a small business credit card, the credit card can also affect your credit score. However, if you work with a large company and have a corporate credit card issued in your name, the credit card is unlikely to affect your credit score as the account status is only reported on the corporate company's credit file and not your personal credit file.

So, if you have a small business and you're the primary cardholder or an authorized user, the credit card will appear on your credit report and will impact your credit score. So, be careful how you use the credit card and make sure to make all of your payments on the card in time to ensure that the card does not negatively affect your credit score.

If you're unsure as to whether a company credit card affects your credit score, you should pull a copy of your credit report and review it. If the account appears on your credit report, this means that the credit card will affects your credit score, so use it responsibly.

Even though you're not using your business credit card for personal expenses and the account has your business name on it, if it appears on your credit report, it will have an effect on your credit score just as would a personal credit card. So, if you make late payments, the late payments will appear on your credit report and they will have an impact on your credit score.

On the other hand, if you use your company credit card responsibly, make your payments on time, and keep your credit card balance low, these things will improve your credit score. However, if you miss payments and carry a high balance, this will lower your credit score.

This applies to the primary account holder and any authorized users on the account. For authorized users, if the primary account holder manages the account responsibly, makes payments on time, and keeps a low balance, this will help your credit score.

So, even if you're just an authorized user, you should ensure that the primary account holder responsibly uses the account because you're credit will be affected just as would the primary cardholder's credit.

Did The Card Issuer Check Your Credit Report When You Got Your Company Card?

When a small business borrower applies for a small business credit card, the card issuer will almost always check the primary cardholder's credit report before issuing them a credit card. This allows the card issuer to examine the person's credit report to determine whether the person is creditworthy enough to be approved for the credit card. However, if you're an employee of a small business and a small business owner wants to add you to the company credit card, the card issuer will likely not check your credit report. Only the primary account holder's credit report is reviewed prior to the card issuer opening the account. If you're uncertain as to whether your company card affects your credit score, you should review all three of your credit reports to determine whether it will impact your credit. If the account appears on your credit report, it will affect your credit score.

How to Avoid A Negative Impact On Your Credit Report?

If you have a small business credit card and you want to avoid the credit card from having a negative impact on your credit report, you should make sure to make all of your payments on time and keep your credit utilization (how much of your available credit you're using) at 10% or below and never to exceed 30%. Use the card just as you would your personal credit card because if you're the primary cardholder or an authorized user it will affect your credit just as would your personal credit card.

Also, to keep your account in good standing, you should periodically login into your online banking dashboard and check to see if someone else used or account or if there is unauthorized activity on your account. This ensures that no one else is misusing your account. Also, if you're not already in the habit of reviewing your credit report on a monthly basis, you should. This ensures that no one else has opened accounts in your name and that nothing negative that does not belong to you hurts your credit score.

Bottom Line

So, if you were wondering whether a company credit card affects your credit score, now you know that it all depends on the type of card that you have. If you have a small business credit card, the card will most probably affect your credit score because the status of such accounts is usually reported to the credit reporting bureaus just as would a regular personal credit card. Also, if your employer is a small business owner and he or she adds you as an authorized user on a small business credit card, this will affect your credit score the same way being added as an authorized user on a personal credit card affects your credit. That said, if you've been added to a large corporation's credit card, chances are that it will not affect your credit score because the account status is only reported as part of the organization's credit file and not your personal credit file. If you have any general questions or comments, please feel free to leave them in the comments section below.

Frequently Asked Questions (FAQs)

1. Do business credit cards affect your credit score?

If you are a small business owner and you open a small business credit card for your business, you are essentially making a guarantee to being held responsible for the debt on the card. So, if you have a small business credit card, your account status is likely going to be reported on your credit report, and the card will therefore have an impact on your credit score.

2. Can you be declined a company credit card?

Yes, you can be declined a company credit card. That said, corporate credit cards are easy to obtain as most corporate card issuers will not check your credit in the initial application process.

3. Is it illegal to use a company credit card for personal use?

Not necessarily. You can use a company credit card as agreed upon between you and your employer. Also, if you own the business, you are permitted to make personal purchases on your credit card account as there are no laws that prohibit a person from using a company credit card to make personal purchases. There may be some tax implications, but other than that the practice is permitted.

4. Does a business account affect personal credit?

Yes, a small business credit card account can affect your personal credit and credit score. So, review your credit report to determine whether the account is reported on your credit report and affecting your credit score.


If I Apply For a Personal Loan Do I Have to Accept It?

Regardless of the reason why you applied for a personal loan, you might be wondering whether you have to accept a personal loan after applying for it. We will answer this question in much detail below.

If I Apply For a Personal Loan Do I Have to Accept It?

If you apply for a personal loan, you are not required to accept it. This is so because if you're approved for your personal loan, the lender will not disburse the funds to you until you sign a document accepting the loan. So, even if approved, you're not required to accept the funds. For example, if the lender qualifies you for a loan and the interest rate is too high or you did not like any of the loan terms, you are not required to accept it. You can simply decline to sign the loan agreement. You can decline to sign the agreement even you simply changed your mind as there is typically nothing obligating you to accept the loan.

Having said that, if you believe that you are not going to accept a personal loan, you should avoid applying for it in the first place. This is so because whenever you apply for a personal loan or any type of loan, the lender will have to check your credit report. Whenever a lender checks your credit report, the lender will place a hard inquiry on your credit report, slightly lowering your credit score. Although a single hard inquiry will not lower your credit score by much, applying for too many personal loans within a short period of time will significantly lower your credit score.

If you want to avoid having a hard inquiry placed on your credit report, you should consider contacting the lender and getting pre-qualified for the loan. Prequalification will show you the likelihood that you'll be approved for the loan before you even apply for it, saving you from the trouble of having a hard inquiry added to your credit report. If you do not like the terms, you can avoid applying for the loan in the first place and avoid having a hard inquiry added to your credit report.

That said, not all lenders will allow you to be pre-approved for a loan. Some will require you to apply for the loan to know what terms you qualify for. That said, before you apply for a personal loan, you should do some research to get an idea about the kind of terms that you should expect from the lender.

What Happens If I Do Not Accept a Personal Loan?

If you apply for a personal loan and you're approved for the loan, you are not required to accept it. This is so because even after you're approved for the loan, your lender will not disburse the funds to you until you sign an agreement. If you do not accept a personal loan and you paid an application fee for the loan, that fee is typically nonrefundable. Overall, if you choose not to accept a personal loan after you're approved, you should immediately contact your lender and tell them that you no longer need the loan. Check the agreement or loan application to determine whether you owe any fees for the loan you applied for.

How Can You Apply For a Personal Loan?

Today, it's easier than ever to apply for a personal loan. This applies whether you're applying for a loan through your bank, a credit union, or other online providers of personal loans. Some personal lenders will be willing to work with you to get you pre-approved for the loan, which helps you avoid adding a hard inquiry to your credit report. That said, not all lenders offer a pre-approval process.

If your lender offers a pre-approval process, you should expect to provide some basic information about yourself. The information you'll need to provide includes the following:

  • Name
  • Address
  • Full or partial Social Security Number
  • Employment status
  • Income

After you've provided the lender with this basic information, the lender will conduct a soft credit check to review your credit report. At this point, the lender will have a better idea of your creditworthiness, and will then proceed to put together a quote about the personal loan amount you're pre-approved for, as well as the terms and interest rate that you qualify for. Since this is a soft check, known as a soft pull, it will not lower your credit score as would a hard inquiry had you applied for the loan.

If you like the terms of the loan and want to go ahead and you want to get it, you will have to submit a full loan application that will result in a hard inquiry. Although a hard inquiry will appear on your credit report, a single hard inquiry will only cause a slight drop in your credit score.

Furthermore, when applying for a personal loan, you will usually have to submit the following information:

  • Name
  • Address
  • Full Social Security Number
  • Employment status
  • Proof of income
  • Current banking information
  • Government-issued photo identification
  • The purpose for taking out the personal loan
  • The amount you want to borrow

After you submit the application, the lender will review the information you've submitted, as well as request and review a copy of your credit report and credit scores. If the lenders find that you meet their criteria, they will approve you for the loan and submit a decision to you via email, mail, or telephone call.

When the lender contacts you, they will typically provide you with the terms of the loan that you were approved for. The better your credit score and financial situation, the better your personal loan terms will be.

At this point, you will be given an opportunity to either accept or reject the personal loan. If the terms seem reasonable for you, you can accept the loan. If they do not, you can reject it. Before accepting or rejecting it, you should shop around and se what other offers you may be eligible for. Just remember, try to get pre-approved and do not apply for too many personal loans within a short period of time as this will hurt your credit score.

Are you Required to Take the Loan You Were Approved For?

Even if you were approved for a personal loan, you are not required to take the loan. This is so because once you've been approved, the lender will present you with the terms of the loan. If for any reason you do not like the terms of the personal loan, you are not required to take the loan, and can simply choose not to agree to it. That said, you should only apply for a loan that you know you'll want to take if approved. Because usually, if you're approved for a loan, this means that the lender has already checked your credit report and placed a hard inquiry on your credit file, slightly lowering your credit score.

Additionally, you should carefully consider applying for a personal loan because many lenders will charge you a non-refundable application fee. So, to avoid paying unnecessary application fees, only apply for a loan that you're reasonably sure you want to take and one that you're likely to be approved for.

Also, you should be aware of loan origination fees. Although most major lenders will not charge you a loan origination fee, some lenders will charge you this fee. A loan origination fee is a fee that's charged by a lender to compensate them for the expenses related to providing you a loan. Typically, lenders that charge this fee will deduct it from your personal loan. So, if the lender you want to borrow from charges this fee and you do not want to pay it, you should look for another lender that does not impose this fee.

Should You Get a Personal Loan?

We will now consider some reasons that would make it good for you to obtain a personal loan vs some reasons why you should not obtain a personal loan.

Paying Down Debt (Pro)

Getting a personal loan to pay down some of your high-interest credit card debt may be a great idea as personal loans tend to have significantly lower interest rates than credit card debt. So, if you qualify for a personal loan, it may be an excellent idea to obtain one to pay down your debts. This is so because personal loans can significantly reduce the amount of money that you owe. Furthermore, using a personal loan to pay down your credit card debt can increase your credit score because it reduces your credit utilization rate, which can boost your credit score.

Unsecured (Pro)

Personal loans are often unsecured, meaning you are not required to deposit any type of collateral with the lender to obtain them, making them fairly easy for the average person to obtain. In the event that you are not capable of repaying the loan, you will not lose any collateral because none was deposited. Although, home equity loans are cheaper than personal loans because they often come with a lower interest rate, if you do not pay a home equity loan, the bank may foreclose on your home as repayment of the unpaid home equity loan.

Quick (Pro)

Obtaining a personal loan is fairly quick, often taking no longer than 7 business days to get a personal loan. So, if you have an emergency and you need quick cash, a personal loan is a great way to get quick access to funds.

Short Repayment Term (Con)

Typically, personal loans come with a fixed and short repayment terms, with most ranging from 1 to 5 years. So, you should keep this in mind as you will be liable for making a fixed payment every month. So, before you apply for a personal loan, keep in mind that you will have to keep enough funds to afford the monthly payment for the term of your loan.

Expensive (Con)

Usually, with a personal loan, you will have to make pre-determined loan payments within a short period of time to pay back the money that you're borrowing. For some people, this may result in a large payment that they are not capable of making on a monthly basis. Although credit cards charge higher interest, you have significant leeway when it comes to paying your down debt so long as you're making the minimum payment on your credit card.

Although personal loans are significantly cheaper than borrowing money on your credit card, some lenders charge a high interest rate. Some personal loans are cheap, coming in at interest rate of 5% to 7%, however, other personal loans are expensive, often exceeding 10%. So, you should consider the amount of interest when choosing to take a personal loan.

Does a Personal Loan Affect Your Credit Score?

Yes, taking out a personal loan will affect your credit score. However, the effect it has on your credit score will depend on a few things. First off, when you apply for a personal loan, your lender will place a hard inquiry on your credit report when they access it to review your eligibility for the loan. That said, a single hard inquiry will only lower your credit score by a few points.

Furthermore, a personal loan increases the amount of debt that you owe, which can lower your credit score, especially if you're not using the funds to pay down other debts, such as credit card debt.

Moreover, since personal loan account status is reported to the credit reporting bureaus, if you do not make your payments on time, late payments will be reported to the credit reporting bureaus, significantly lowering your credit score. However, to avoid this, just make all of your payments on time and this will improve your credit score in the long run.

That said, a personal loan can improve your credit score because it creates a more diverse credit mix, which is a factor that has an effect on your credit score.

Frequently Asked Questions (FAQs)

1. Can I cancel a personal loan after approval?

Yes, in most circumstances, you can cancel your personal loan so long as you did not sign an agreement accepting it and the funds have not been dispersed to you. If you signed the agreement and the funds have been dispersed to you, you should immediately contact your lender and ask them about your options for cancelling the personal loan.

2. Is it worth it to take out a personal loan?

In some circumstances, it may be worth it for some individuals to take out a personal loan. The answer to this question depends on your specific circumstances. We discussed the advantages and disadvantages of taking out a personal loan in the sections above.

3. Can I use a personal loan for anything?

Once personal loan funds have been dispersed to you, you can use them as you see fit unless otherwise restricted by your lender.

4. How soon do you have to start paying back personal loans?

Typically, you will need to begin paying back personal loans within 30 days. That said, you should check the terms of your agreement and look for any communications from your lender as to when your payments are due.


How Much Will Credit Score Increase After Paying Off My Car?

If you're thinking about paying off your car loan, you might be wondering whether paying off your car will increase your credit and by how much. We will answer this question in much detail below.

How Much Will Credit Score Increase After Paying Off My Car?

Your credit score will not increase after paying off your car loan. Oftentimes, paying off a car loan will results in a decrease in your credit score because when you pay off your car, you're essentially closing an installment loan, which often lowers your credit score, especially if the installment loan was in good standing and substantially paid off. So, before you pay off your car loan expecting your credit score to increase, think again. That said, the decrease in your credit score is temporary, your credit score will bounce back in a few months so long as you continue to make timely payments on all of your other accounts.

Paying off your car can decrease your credit score because slightly because you're decreasing your credit mix by closing off an installment loan that is in good standing. Typically, you want to have a diverse mix of credit accounts for the best impact on your credit score. So, if you're thinking about paying off your car loan early to boost your credit score, think again because it often results in a slight but temporary decrease in your credit score.

After you pay off your car loan, if you've never missed any payments, the car loan installment account will appear on your credit report for 10 years from the date your account was closed and it will continue to help your credit score.

So, if you want to keep your credit score as high as possible, you should keep your car loan open for as long as possible, meaning don't pay it off early. However, if you're coming to an end of your car loan, you should not extend it to maintain the highest credit score possible. The drop you will experience when paying off your car loan is slight and temporary in nature. Typically, credit scores will recover within just a few months.

When is it Good For You to Pay Off Your Car?

It may be a good idea for you to pay off your car loan if any of the following situations apply to you:

  • High Interest Rate - If you have a lengthy auto loan (60, 70, or 80 months) and you're paying a very high interest rate, you may want to consider paying off your loan because you might save a ton of money that you would have otherwise paid on interest. That said, before paying off your loan, you should check your loan agreement to ensure that your car loan provider does not impose a prepayment penalty for those paying off their car loans early. Also, check your loan to determine whether your interest is precomputed. Precomputed interest means that the amount of interest was calculated and fixed at the outset of the loan, so if you were to pay off your loan early, you would be paying all of the interest as if you had not paid it off early.
  • Debt to Income Ratio - If you want to improve your DTI (debt to income) ratio, you should consider paying off your loan early. This situation often arises when a person is looking to borrow money to buy a home. Some banks may be unwilling to lend a person money if his or her debt to income ratio is too high. In this situation, paying off your car loan may be worth it because it can significantly lower your DTI, depending on how much you owe on your car. Typically, lenders like to see a debt to income ratio below 31%, so if your DTI is significantly higher, paying off your car may be a way to bring this number down, qualifying you for a decent home loan. The lower your DTI, the more likely it is that you'll be approved for a home loan with reasonable terms and interest rates.
  • Sufficient Open Accounts - If you already have many open credit card accounts, a car loan, a student loan, and other loan types, you may already have a good mix of credit. If you have a good mix of credit, paying off your car may still result in a small drop in your credit score, but such a drop is temporary and your credit score will recover fairly quickly.

When Should You Hold Off On Paying Off Your Car?

You should hold off on paying off your car loan if any of the following situations apply to you:

  • Low Interest Rate - If you have a low interest rate or even a 0% interest rate, it may not make sense for you to pay off your car loan early because the amount of money that you would save is negligible, especially if you're financing your car at 0% because you will not save on interest. You may benefit from keeping your cash on hand and continuing to make timely payments on your auto loan to establish more good credit history.
  • No savings - You should hold off on paying your car loan if you do not have emergency funds saved up. Keeping cash on hand and continuing to make timely payments is recommended by some experts. This is so because if you lose your job or incur an unexpected expense, you will have some cash on hand to get you through the job loss or unexpected expense.
  • Loan almost paid off - If you're car loan is almost paid off, there really isn't a significant reason to pay off the loan early because by the end of your loan, you would have already paid most of the interest due on your auto loan. It's easier and better to continue making payments until you've paid off your car loan. Moreover, your credit score will benefit from the flawless payment history on your car installment loan, boosting your credit score.

What Happens To Your Credit Score If you Pay Off Your Car Loan Early?

Paying a car loan off early is the same as regularly paying off your car when it comes to your credit score. Many people often believe that paying off a car loan early will boost their credit score, but the opposite is actually true, especially if the car loan was in good standing and all payments were made on time. This is so because paying off a car loan early means that you're closing an installment account, which reduces your credit mix. Oftentimes, when a car loan is paid off early, you will actually notice a slight decrease in your credit score, and this is totally normal.

The slight decrease results because you've closed an installment loan that is no longer contributing to your credit score. That said, do not worry if your credit score drops a few points as it will recover so long as you continue to make all of your other payments on time. So, if you were thinking to pay off your car loan early for some bonus credit score points, do not do it because there is no credit boost associated with it.

Frequently Asked Questions (FAQs)

1. Will paying off a car improve my credit?

Paying off your car early will not improve your credit score. In fact, when you pay off your car loan early, your score will slightly drop. That said, when your score drops because you've effectively closed an installment account by paying off your car loan, rest assured that your credit score will recover within a few months. Just make sure to keep making the payments on your other accounts on time.

2. How long after paying off a car loan does credit improve?

Experts have stated that your credit score will begin to improve within just a few months after paying off your car loan. Just continue to make all of your other credit card and loan payments on time and your credit score will recover fairly quickly.

3. Why did my credit score drop after paying off my car?

Your credit score dropped when you paid off your car because when paying off your car, you are closing an installment account. This could hurt your credit score for a few reasons. First, it will hurt your credit score because closing an installment account reduces your credit mix, which lowers your credit score when you have less of a variety of open accounts. Second, having an account that is in good standing and substantially paid off boosts your credit score, so closing an account that's boosting your credit score can lower it slightly.

4. Is it worth paying off a car loan early?

It may be worth it to pay off your car loan early, especially if you are paying a high interest rate for the loan. That said, check your loan agreement to insure that there is no prepayment penalty that would negate the benefits associated with paying off your car loan early. Also, check if your bank requires you to pay the interest due on the account when paying off your car loan early. If both of these two things do not apply, you may benefit from paying off your car loan early.


What Does Creditworthiness Mean?

We often get asked the question what does creditworthiness mean and what's the definition of creditworthiness. Since we often receive this question, let's discuss what it means in much detail below.

What Does Creditworthiness Mean?

Creditworthiness refers to how worthy you are to receive credit or how a lender assesses whether you're worthy of obtaining credit. Creditworthiness is something that almost every lender looks at before lending you money. A creditworthy person is someone who is less likely to default on a debt, therefore creditors are likely to lend him or her money. On the other hand, someone who is not creditworthy is unlikely to be able to borrow money. If a non-creditworthy is able to borrow money, he or she may have to pay a high interest rate to compensate the lender for taking a risk to lend that person money.

Simply stated the definition of creditworthiness means how likely it is that a lender will lend you money because he believes that you're able to repay the money borrowed in a timely fashion. A person's creditworthiness depends on a few factors. The main factor that goes into a lender's decision to lend you money is your credit score. Typically, the higher your credit score, the more likely it is that a lender will lend you money. The lower your credit score, the less creditworthy you will be, and the less likely it is that a lender will lend you money.

Lenders use your credit score and credit report to evaluate your creditworthiness because they show how how well you've handled repaying your debts in the past. This gives lenders a forecast on what to expect when lending you money.

As such, to improve your creditworthiness, you should raise your credit score. You can raise your credit score by making all of your credit card, loan, and lease payments on time. You should also consider lowering your credit card and loan balances because your credit utilization is factored into your credit score.

What Do Lenders Consider When Determining Your Creditworthiness?

Credit Report Review

The first that lenders often look at when evaluating your creditworthiness is your credit report and credit score. Your credit report and credit score are available from the three major credit reporting bureaus: Experian, Transunion, and Equifax. Each one of your credit reports has a list of your accounts, including credit card accounts, installment loans, student loans, and any other type of account and debt obligation. The details of every account, including account balances and payment history, are on your credit report, providing lenders with a good idea of how you've handled debt repayment in the past. Borrowers with good credit scores have typically made all of their payments on time and therefore have good creditworthiness. However, borrowers who have missed payments or defaulted on their accounts typically have a bad credit score and are therefore less creditworthy.

Credit Score Review

Just as lenders review your credit report to determine your creditworthiness, they will probably look at your credit score as well. Your credit score is calculated based on the information in your credit report. If you've handled borrowing money and repayment responsibly, making all of your payments on time, you should have a good credit score, which means your creditworthy. However, if you've handled repaying your debts poorly, you will likely have a bad credit score and are therefore less creditworthy. Credit scores range from a low of 300 and a high of 850. Typically, you should aim for at least a very good credit score, ranging from 740 to 799, the higher your credit score, the more creditworthy you will be. The better your credit score, the more creditworthy you'll be because you present a low risk of defaulting on your debt obligations to lenders.

Debt & Income

When assessing your creditworthiness, some lenders and banks will ask to verify your income. Typically, if the amount you're borrowing is low, they may simply ask for your income. However, if the loan amount is large, such as when you're financing a car or taking out a home loan, the lender may ask you to verify your income by providing either a tax return or by providing them with a paystub. Usually, if you have a high credit score, lenders will not ask you to verify your income, however, if your credit score is poor, the lender may ask you to verify your income regardless of the amount you're seeking to borrow. The reason that lenders and banks ask for your income is to calculate your debt to income ratio to determine how much money you can afford to borrow and repay.

In the event that your debt to income ratio is too high, meaning your income is not sufficient for the lender to lend you money, the lender may ask you to provide proof that you own assets or having money in your checking or savings account that you can use to repay the loan in the event that you do not have enough money to repay the loan.

Why Do Lenders Look at Your Creditworthiness?

Your creditworthiness matters because lenders use it to determine whether or not to lend you money. Your creditworthiness tells lenders how likely it is that you will repay the money you're borrowing from them. Lenders do not want to lend money to people who are likely not going to repay it back. So, creditworthiness is a way for them to assess whether you will repay them or default on repayment obligations. Typically, if you want to lease a vehicle, finance a vehicle, buy a home, take out a personal loan, or borrow money for any reason, lenders will assess your creditworthiness.

If your creditworthiness matters to you (it probably should), you should begin establishing your creditworthiness from a young age. Opening a credit card, using it responsibly, and pay it off in full every month will help you establish your credit. Establishing credit history is a major part of establishing your credit history, so begin establishing it early on to qualify for good lending terms in the future.

Furthermore, establishing creditworthiness is important because lenders will base not only their decision as to whether to lend you money, but also the repayment terms and interest rate. If you're creditworthy, you will qualify for good lending terms and a low interest rate. On the other hand, if you're not creditworthy, you may either not qualify at all to borrow money, or if you do qualify, you will qualify for unfavorable terms and a high interest rate. So, establish your credit and creditworthiness early on to qualify for the best lending terms and interest rates.

Lenders charge those who are less creditworthy more interest to compensate them for the risk they're taking by lending to that person as well as for the trouble they will face in the event that the less creditworthy person defaults on making payments on his loan or credit card. Since borrowers who are more creditworthy pose a less risk of defaulting, they often quality for better interest rates.

What Are the Benefits of Being Creditworthy?

Here are some of the benefits that come with being creditworthy:

  • Qualification - People who are creditworthy are more likely to qualify for loans and credit cards than persons who are not creditworthy.
  • Utility Accounts - Utility providers often do not require a security deposit when establishing accounts for persons who have good credit because they are more likely to pay their utility bills on time.
  • Auto Insurance - Being creditworthy means that some auto insurance providers will qualify you for lower premiums because persons who have good credit are less likely to be involved in an accident and are therefore most likely going to cost insurance companies less money.
  • Renting - Having a good credit score and being creditworthy means that landlords are more likely to approve you for an apartment, especially if the landlord looks at credit scores when vetting people who apply to lease or rent an apartment.
  • Buying a Home - Being creditworthy means that you're more likely to be approved for a home loan when seeking to borrow money to buy a home.
  • Employment - Having creditworthiness means that you are more likely to be hired in the event that your employer conducts a credit check prior to hiring you for employment.

Check Your Credit to Determine Your Creditworthiness

In the United States, your creditworthiness is largely based on how good your credit score is. So, determine how creditworthy you are, you should begin by checking your credit report and credit score. If your credit report only has positive information because you've been making all of your credit card and loan payments on time, you are probably creditworthy and have a high credit score. However, if you check your credit report and find negative items, such as missed payments, late accounts, collection accounts, repossessions, or other negative items, you are less likely to be creditworthy because your credit score will be low. When checking your credit score, if you come across negative information that does not belong to you, you should dispute it with the credit reporting bureau reporting the inaccurate information. If you have any general questions or comments, please feel free to leave them in the comments section below.