Credit inquiry FAQ
Multiple credit inquiries or “pulls” can affect your credit score. Read on for answers to frequently asked questions about credit inquiries and working with LendingTree.

How will using LendingTree affect my credit score?
LendingTree pulls your credit score when you complete a loan request. This is known in the credit industry as a “soft pull” because we do not pull your full credit report, just your score. A soft pull does not affect your credit negatively. In addition, LendingTree does not share your exact score with our lenders. Rather, LendingTree uses a score range to determine which lenders meet your criteria.

The information in the soft credit pull is good for 45 days. If you submit an additional loan request anytime within 45 days of your initial request, LendingTree will not pull your credit file again; however, the lenders you are matched with may pull your full credit report each time you submit a loan request.

Lender credit requests are considered “hard inquiries” and can affect your score. Keep in mind, though, that the credit bureaus understand that savvy consumers want to review multiple loan offers, so the bureaus consolidate all mortgage loan credit inquiries within a certain period (which can range from 14 to 45 days) and count them as one inquiry.

Why does LendingTree pull my credit?
LendingTree uses your credit score to determine which lenders can compete for your business. Because LendingTree pulls your credit, the lenders on our network are able to give you actual loan offers, rather than just rate quotes.

Do I have to allow LendingTree to pull my credit?
No, there’s another option. You can also be matched with lenders through our QuickMatch process. QuickMatch will still match you with lenders who meet your criteria. Without your credit score, however, lenders won’t be able to make loan offers until they talk to you directly and get permission to pull your credit. This is an important distinction between the services.

Do the lenders I am matched with pull my credit too?
They may. If you submit a request through LendingTree, you authorize the lender(s) you are matched with to pull your credit report and score. The lenders need this information on your report to generate a customized loan offer, and each lender has its own policy about pulling your credit report. The good news is that the scoring formulas used by credit reporting agencies account for this type of loan shopping.

Why do credit inquiries affect my credit score?
Lenders are interested in inquiries because multiple inquiries are an indication that you are requesting new credit. The credit scoring agencies have found that borrowers who request credit frequently tend to be higher risk borrowers. Thus, frequent inquiries on your credit report that result from frequent requests for new credit (credit cards, loans, etc.) can lower your credit score. (The lower your score, the more risk the lender sees in lending to you.)

However, credit reporting agencies understand that borrowers need to shop around to find the best loan, which can create multiple inquiries in a short time. To address this, the scoring formula doesn’t penalize borrowers for shopping around. The score is set up to take into account that even though you are looking for only one loan, multiple lenders may request your credit report. Here’s what Fair Isaac, the company behind your FICO score, says about rate shopping:

“The score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. So if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping. In addition, the score looks on your credit report for auto or mortgage inquiries older than 30 days. If it finds some, it counts all those inquiries that fall in a typical shopping period as just one inquiry when determining your score. For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span. For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span. Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.”*

*Copyright © Fair Isaac Corporation. Used with permission. Fair Isaac, myFICO, the Fair Isaac logos, and the Fair Isaac product and service names are trademarks or registered trademarks of Fair Isaac Corporation.

Tips for online safety and privacy
Increased e-commerce security and web-savvy consumers are helping to reduce online identity fraud.

Tighter security procedures and increased consumer awareness have made the Internet a safer place to transact business than ever before. In fact, the common misconception that most identity fraud occurs through the Internet was recently called into question by the 2007 Identity Fraud Survey Report conducted by Javelin Strategy & Research.

According to the survey, identity thieves have greater success stealing private data through physical, real-world channels like “dumpster-diving” (fishing documents like bank statements and pay stubs out of the trash) than they do via online transactions. Plus, the number of identity fraud cases in the U.S. is dropping. Identity fraud and theft cases fell by 12 percent between 2005 and 2006.

However, it’s still important to know how identity thieves operate and how to safeguard your personal information when online.

Encryption technology
Before submitting bank account or credit card information online, make sure the information you’re sending will be transmitted via a secure Web page. The page should be protected by encryption technology that scrambles the data during transit so no one other than the host site can decipher it.

Secure URL
Even though a site may look professional and legit, that’s not a guarantee that it’s secure. You can usually tell if the page you’re viewing is encrypted from the URL: Unencrypted pages typically begin with http://; encrypted ones begin with https://. If you are entering sensitive financial information such as a credit card number, be sure to look for the https:// in the url.

Lock icon
A lock icon should also appear on secure pages in the status bar of your browser window. Click on it and the security certificate of the page you’re viewing should come up. The lock icon is a helpful tool, but you should always test its functionality; some sites create a fake status bar and lock icon to give users the impression that the page is secured when, in fact, it isn’t. If the site has a privacy policy, read it carefully to see what personal information you will be asked for and how it will be used.

Password protected
You can be confident you have an added layer of protection, if a Web site requires you to input a personal password in order to access your account. This prevents anyone who does not know your password from being able to go online to view your personal information.

Personal firewall
Online security isn’t restricted to the Web sites themselves. You can buy protective “firewall” software for your computer to prevent any sites you connect to from accessing your hard drive and to keep your private information safe from hackers. Also, you should store any login or password information for secure sites in a safe place and make sure you don’t share them with anyone.

For companies that do business online, keeping their customers personal information private and secure is vital. For example, here are some of the ways that LendingTree ensures your data is kept private:

• LendingTree protects your financial information by using SSL (Secure Sockets Layer) Technology that encrypts data in a format only LendingTree can decode.

• All pages on LendingTree that prompt you to enter personal financial information are protected from hackers by the https secure server communication layer.

• Pages that retrieve information about your loan status are password-protected, and any personal or sensitive information you submit is viewed only by authorized personnel. To retrieve information about your loan status, you are required to enter both your email address and password.

• LendingTree stores your information on a computer that is separated from the Internet, so any information you submit will remain safe from hackers.

By checking that all the companies you transact with online protect your personal data in a similar fashion, you can ensure your Web transactions remain private and safe.

What is an insurance score?
Your insurance score is based on your credit score and can be used to calculate your insurance premiums.

Think your credit score affects only your ability to borrow money? Think again. Your credit score also can affect your access to homeowner and car insurance and the size of your monthly premiums. In fact, your credit score can be used to determine your “insurance score.” Never heard of such a thing? Here are the basics on credit-based insurance scores:

Definition of insurance score
As defined by the Insurance Information Institute (III), a person’s insurance score is “a numerical ranking based on a person’s credit history.”

Use of insurance scores
In order to fairly calculate premiums and predict risk, insurance providers try to predict who will submit claims prior to this actually occurring. Insurance carriers do not charge their customers a standard rate, but rather, one that is tailored to each individual’s potential risk. According to the III, actuarial studies have found that a person’s financial stability serves as a good indicator for making these predictions, helping insurers determine a person’s insurance risk level and calculate premium charges equal to that risk level. That is, people with good credit are typically less like to suffer a loss or submit a claim than those with poor credit.

Insurance score criteria
Although a person’s credit record is used in determining his or her credit-based insurance score, it is not the only contributing factor. Some of the data taken from a credit record for use in calculating an insurance score includes:

• Payment history
• Credit history and type
• Length of payment and credit history
• Outstanding debt
• Available credit
• Items of public record – bankruptcies, etc.

When compared to a credit score, an insurance score generally relies more heavily on information such as whether you’ve paid your bills on time and for what length of time, and less so on the amount of debt you have outstanding. Moreover, the importance of your insurance score depends upon where you live – each state has different insurance regulations – and the insurance company you use.

How much do insurance scores matter?
Keep in mind that insurance scores are not the only criteria used to determine if you qualify for insurance and what rate you pay. Insurers also look at motor vehicle reports, your driving record, claims history, home condition or auto features, as well as other information. So an insurance score alone will not dictate the price you’ll pay for insurance or whether or not you qualify.

Also, your insurer may not even use a credit-based insurance score. Some states do not allow credit history to be used for insurance purposes or have regulations regarding how the information can be used. Different insurance companies weigh credit data differently. If you’re interested in knowing whether your insurer uses credit information and insurance scores in their underwriting decisions, contact your insurer directly.

Improving your insurance score
You can work to improve your credit-based insurance score in many of the same ways you would work to improve your credit score. The easiest thing you can do is always pay all your bills on time, as well as eliminate any outstanding balances on your credit cards. This does not mean closing all of your accounts when paying off your credit cards, because a good credit record typically includes one or two accounts that have been open and used responsibly for a certain amount of time.

Ask an expert: Credit card balance
Q: Will carrying a credit-card balance hurt my credit?

A: If you play your cards right, a credit-card balance can actually help improve your credit rating. The most important thing is never to be late with your payments.

A lot of factors go into determining your credit score, and your credit card balance is only one of them. Credit scores reflect everything from late payments and loan defaults to bankruptcy and foreclosure. If you are timely with your debt and loan payments, have not declared bankruptcy and have not had any collections or repossessions, then it’s unlikely that carrying a credit-card balance will have much effect on your credit rating.

On the other hand, if you have no credit, or are recovering from bad credit, a credit card could help you build good credit to offset your previous history. Even if you are not earning much of an income, you may be able to get a secured credit card. Be careful about applying for every card you can think of, since credit inquiries are a negative mark on your credit report. Most lenders are deterred if they see more than four to six credit inquiries in a six-month period.

Once you have a card, make small purchases and pay them off immediately. This will help build up your good credit. As you get more stable, you can try making larger purchases and maintaining a balance on your card. Just make sure that you meet your required minimum payment on time.

A word of caution: because the interest rate is high on credit cards, it will cost you more overall if you make only the minimum payment. For example, let’s say you have a balance of $2,000 with an interest rate of 18 percent. If you make only the minimum payment of $40 every month, you will wind up paying $4,927 in interest. Not only that, but it will take you more than 30 years to pay it off. If you double your monthly payments, you will be debt-free in less than three years, and pay $526 in interest.

Melody Yow
Credit product manager

How to fatten up ‘thin’ credit
Installment loans, charge cards and other monthly payments can help borrowers build credit history.

“Thin credit” doesn’t mean your finances have been on a diet or you need to slim down your spending. Rather, the term refers to a thin file of credit information, whether that file is a paper folder or, more likely these days, an electronic file that contains information about your use of credit.

Thin credit creates challenges when you need to borrow
Without much information in your credit file, lenders can’t obtain your credit score, which is a numerical representation of your credit history. Perhaps you have only one or two credit accounts or maybe your accounts haven’t been open long enough to demonstrate a track record of using credit responsibly. If you don’t have enough credit items to generate at least two of the three typically used credit scores, the likelihood that you’ll be able to qualify for a traditional home loan will be slight.

People who have thin credit typically have difficulty borrowing money to buy a home or for other purposes because lenders can’t review their past use of credit to judge whether they are likely to repay the loan. A lack of credit history makes the loan riskier for the lender, so the borrower is likely to be charged a higher interest rate and higher costs to compensate the lender for the additional risk.

Strategies to strengthen your credit file
You don’t need major credit accounts like a credit-card, car loan or mortgage to establish a minimal credit history. Instead, you can get started with an installment loan from a jewelry, furniture or electronic store; a department store or gas station charge card; a gym membership or even a cellphone account that’s paid monthly. After that, a car loan or a credit-card is a good way to fatten your credit file.

If you have open credit accounts that you use only infrequently, you can strengthen your credit by using those accounts more often to establish a pattern of borrowing money and paying your debts. A mix of different types of credit (e.g., a credit-card and a car loan) can also help to strengthen your credit history.

It’s important to use credit responsibly throughout your lifetime. Never borrow more than you can afford to repay even if you want to improve your credit score. Unpaid debts don’t result in better credit, and bad credit is much more onerous and burdensome than thin credit.

Other options for thin-credit borrowers
People who have thin credit also have other options if they want to borrow money. One option is to have a co-signer who has a strong credit history and who agrees to also be responsible for the loan. Another option is to make a very large down payment, which reduces the lender’s risk. A steady paycheck and other assets such as a retirement savings account can be helpful as well.

How to avoid real-life credit disasters
We’ve all heard horror stories of credit card fraud and runaway debt. Here are some tips on how to protect yourself.

Borrowing money wisely can help you accomplish goals you’d otherwise be unable to attain, such as owning a home or getting an education. But credit can also get you into trouble if you’re not aware of its potential dangers. Here are some examples drawn from real life, along with tips on how to make sure they don’t happen to you.

Fraud and scam artists
Tom received a call from a man who identified himself as a member of the anti-fraud department of his credit card issuer. “Did you recently purchase an item from XYZ Marketing for $450?” the man asked. When Tom said no, the caller continued: “That’s what we thought. This company is currently under investigation for fraud. We’ll process a refund immediately, but I need to verify the three-digit code on the back of your card.” Tom read the number, and the caller confirmed it was correct. A week later, Tom received his statement in the mail. It included a brand-new charge for $450.

Tom was the victim of a scam designed to trick people into revealing the verification code on their credit card. Many merchants cannot process transactions unless you provide this three-digit number, which ensures that you have the card in your possession. To protect yourself, never reveal your credit card information to someone who calls to request it, no matter what story they feed you. Most legitimate credit card companies do not do this with their customers, and if you suspect foul play, hang up and call your credit card issuer back to verify the call. Same goes for your bank account — never reveal your account details or PIN number. If you suspect you have been scammed, call you card issuer or bank immediately to report it.

Delinquent co-signers
Paula had been divorced for six months when she applied for a mortgage. When the lender checked her credit report, they declined her application because her line of credit was five months in arrears. Paula protested that her ex-husband had agreed to pay off the line of credit as part of their divorce settlement. The loans officer explained that while he was sorry, there was nothing he could do.

Paula discovered the hard way that divorce does not get you off the hook for credit accounts held jointly with a former spouse. Even though Paula’s husband agreed in writing to pay off the line of credit, the lender is not obliged to recognize that agreement — Paula was still legally responsible for the debt. If you are in the process of divorce, make sure that any joint credit accounts are closed and refinanced during the settlement. That way, if your ex doesn’t pay his or her share, you’re not responsible.

Mortgaging tomorrow to pay for today
Colin made a good salary and felt he deserved the finer things in life — a luxury SUV, a big house with a swimming pool and dinners at expensive restaurants. His philosophy was always “buy now, pay later.” He bought his home and vehicle with no money down and charged everything to his credit cards, making the minimum payment each month. Then Colin was downsized out of his job, leaving him $300,000 in debt with no way to pay it off. In the end, he was forced to declare bankruptcy.

Smart borrowers use credit with an eye to the future and are careful not to live way beyond their means. Colin spent years racking up high-interest debt to finance a lifestyle he could not afford. Even if you’re not a spendthrift, you may still end up in trouble if you never pay more than the minimum payment on your credit cards or if you’re constantly borrowing from one account to pay off another.

Already feeling over your head in debt? Talk to a credit counselor or financial planner who can walk you through some options for regaining control of your finances, including a debt consolidation loan.

Becoming a smart borrower
Learning the necessary skills to manage your debt is a first step on the path to financial freedom.

With historically low interest rates and a large number of lenders competing in the marketplace, now it’s easier than ever to borrow money. The process of applying and qualifying for credit is also fairer and more accessible than it was in the past.

This is a good thing, because it makes it financially possible for more people to pay for a home, a car or a college education. But it also means that for some there’s a temptation to borrow more than they can afford.

That’s why it’s important to become a smart borrower — and the first step is to learn the difference between good and bad debt:

• Good debt is borrowing to purchase an asset that is likely to go up in value. It comes with a favorable interest rate and may even be tax-deductible. A mortgage that you can comfortably afford is a good example. Borrowing to buy a business, or to upgrade your education or job skills can also be good debt, since you’re using the money to build future wealth.
• Bad debt, on the other hand, is expensive and used to buy things that quickly lose their value. If you buy a big-screen TV and take six months to pay it off on your credit card at 18 percent interest, that’s bad debt. So is taking out a seven-year-loan to pay for a car you’ll only drive for five years.

Sometimes a debt is bad not because of what you buy, but because of the type of financing you choose. For example, if you take out an interest-only mortgage to buy a house you would otherwise be unable to afford, you could find yourself in a budget crunch when the interest-only period ends and you have to start making higher payments.

Becoming a smart borrower means using good debt to build wealth and avoiding bad debt that erodes it. Here’s how to start:

Keep on top of your credit score. Whenever you borrow money or apply for credit, the lender checks your credit score. This number reflects your past history of borrowing. The higher the number, the lower risk you are to the lender and the better interest rate you’ll receive. By paying your bills on time and maintaining a good credit score, you’ll be able to get loans at the best rate going.

Request your free credit report and score from LendingTree.

Make sure you’re getting the best rate. Check if you can refinance your mortgage to one with a lower rate, or one that pays down your principal faster. You might even be able to get your credit card company to lower the rate it charges you by simply asking. With so many lenders competing in the market, you can easily shop around for a better interest rate if you request a loan through LendingTree.

Review your credit accounts and consolidate. Paying off your high-interest credit cards with a low interest debt consolidation loan or home equity loan or line of credit may save you a considerable amount in interest rate charges. Just remember, it’s crucial that you avoid running up your credit card balances again. Otherwise you’ll find yourself in an endless cycle of debt.