A New Student Loan Plan Could Lower Your Payments … But There’s a Catch

The Department of Education is inviting people to comment on a series of changes it plans to make to its student-loan relief programs.

Although much of it comes as welcome news, one of the ED’s modifications is troubling. But first, a sampling of the good stuff.

The revised Pay As You Earn plan (REPAYE) tackles the problem of so-called negative amortization. It limits the amount of unpaid interest that can been added to the loan balance when the new monthly payment that’s calculated under one of the department’s various income-contingent plans turns out to be less than the interest due.

The ED also says it will soon address another sticky matter that has plagued relief-seekers: recertification. Currently, income-contingent plan participants must annually requalify for assistance by submitting copies of their prior-year tax returns and sometimes other documentation. The department announced it is laying the groundwork for borrowers to authorize the IRS to automatically share their returns with the agency when they are filed.

As for the roughly $300 billion dollars’ worth of loans that remain unpaid under the discontinued Federal Family Education Loan program, the ED is moving to ensure that military service personnel are more efficiently identified so they will receive their entitled accommodations. Other troubled borrowers are to be provided with the proper level of financial and educational support as well.

Now for the change that gives me pause. It has to do with the methodology for determining financial hardship.

The department’s income-contingent repayment plans have thus far used aggregate household income (AGI, per the IRS filings) as a starting point for determining the extent to which financial hardship exists and the basis for calculating an “affordable” monthly payment amount as a result. The ED’s worry, however, has to do with the potential for married couples to game the system by filing separate tax returns. So it will now require that incomes for both spouses be reported for these purposes.

I admit I hadn’t focused on the notion of “household income” until I read this change. Now I have mixed feelings about it.

Suppose a couple decides to tie the knot. Also suppose one half of the couple earns $50,000 per year and has a $20,000 car loan; the other half makes $30,000, has $5,000 in credit card debt, a $10,000 car loan and $25,000 in student loans—all in arrears.

The second half of the couple’s lenders would love to add the first half to all the debt currently on the books because of his or her relatively light debt-load. That can’t be done though, even after the couple marries because the first spouse wasn’t a party to the loans undertaken by the second. The only way for a lender to gain an added obligor is by explicit consent.

Clearly, the methodology the ED has in place and the modification it plans to implement runs contrary to that. Clearly, the methodology the ED has in place and the modification it plans to implement runs contrary to that. (And lest you think the government has the market cornered on stealthy ways of offsetting risk, consider how some private lenders require loan co-signers, whose obligations they are loath to release later on.)

Even more troubling is the fundamental problem with using aggregate household income in the first place: It fails to take into consideration the possibility (if not, likelihood) that both spouses are already tapped out.

Given the rapidly deteriorating payment performance on this second-largest form of consumer debt in the U.S., there is no question that relief is needed—if only to avoid additionally burdening taxpayers who will have to make good on the government’s loan guarantees.

And while it would make so much more sense to bite the bullet and refinance every single dollar of these loans across the board, I have to question the ethics of punishing two people for the sins that may only have been committed by one.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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This article originally appeared on Credit.com.

This article by Mitchell D. Weiss was distributed by the Personal Finance Syndication Network.

Did You Make One of These 7 Back-to-School Shopping Mistakes?

As kids across the country embark on that saddest of journeys back to school after a summer of fun, wondering where all the time went, many parents may be having a similar reaction to the frenzy of back-to-school shopping and where their money went.

While getting a child equipped for school is never a cheap date, for families who have a limited budget (or no budget at all) this time of year can be stressful, especially with a series of expensive holidays on the horizon.

Here are seven common back-to-school shopping mistakes you may have made this year, and some help for avoiding these pitfalls next year.

1. You Didn’t Work Out a Budget Beforehand

If you had a problem with cash flow, one of the biggest mistakes you could have made was to wade into the back-to-school swamp without a budget. Like the dreaded ad lib speech on the presidential campaign trail, stream of consciousness shopping is never a good idea. Before you set out, determine your financial threshold for pain, and don’t stray from the school’s list of requisite supplies.

Unless it’s absolutely necessary (or a family bonding exercise), consider shopping without your kids. You can browse together online before you hit the pavement (or the Internet version thereof). Self-expression is a wonderful thing, but you may be pressured into overspending if they’re with you and insist on “needing” things that aren’t on your list.

2. You Used the Wrong Credit Card

If you count yourself among the millions of Americans who don’t – or can’t – pay off their credit card debt at the end of every month, hopefully you picked your card carefully. Whether you figured out how to use the card with the lowest interest rate or decided you’d rather shoot for the best rewards, if you didn’t take a moment to think about which card could do the most for you (or the least amount of harm), you may be regretting it in the months to come. (Furthermore, if you’re carrying a balance on a rewards card, you’re probably paying more in interest charges than you’re earning back in rewards. It’s something to keep in mind.)

Forgot the exact terms of each of your cards? You’re not alone, but you’re not out of luck, either. They’re posted online and it’s very much worth checking the fine print before your statement comes.

3. You Used Credit When You Had Cash

The amount of your available credit that you’re using makes up about 30% of your total FICO score. If you’re carrying a balance, keeping it at no more than 30% of your available credit — though 10% or less is even better – is a good way to maximize that factor in your credit score. If you are pushing the limits of your available credit, you might want to consider paying cash instead.

A good rule of thumb: If you don’t have the cash, pretend that’s what you are using. It will curb your spending. Be a smart shopper. The last thing you want to do, when you’re approaching the end of your credit runway, is add more debt.

If you decide to use a credit or debit card, decide exactly how much you want to spend, and stick to it. The same thing applies to budgets as to diets: It’s the sips and nibbles that get you in the end. Discipline should be your watchword.

4. You Missed a Chance to Earn More Rewards

You could have all the available credit in the world and yet still you messed up because you chose a lousy rewards program. When it comes to this, not all credit cards are great, or even good.

Your credit card company may offer quarterly rewards deals, but you still have to take advantage of them—and the first step is most often reading your offers. Doubtless you get a whole lot of promotional mail, but it’s worth actually looking at some of it. In addition to a discount, reading correspondence from your credit card company – in this case, your statements – can be the Paul Revere moment for various kinds of fraud, something I explain in my forthcoming book, Swiped.

What do these offers look like? Some back-to-school rewards programs might offer savings on school supplies or kids’ clothing.

Always shop around, because “your mileage” may vary and there are often great deals out there.

5. You Applied for a Store Credit Card You Won’t Use

The 5-10% discount that most retailers use to lure you into signing up for their credit card might have been too good to be true, or rather, it was nowhere near enough of a discount to offset the higher-than-average interest rates they often carry. Store credit cards can be used wisely to get good discounts, but if you won’t be returning to the store often, you may not be able to use them.

Additionally, you may have dinged your credit score if you applied for too many cards on your back-to-school journey. If you’re not sure how many inquiries are on your report, you can get a free credit report summary from Credit.com. It can show you that and a whole lot more, including your credit scores and a breakdown of the information on your credit report, in a consumer-friendly way.

An added warning: It can be quite easy to miss a store credit card bill since you aren’t using it often. Make sure you keep an eye out for any bills, since missing a payment can drop your credit score significantly.

6. You Took Out a Payday Loan

Payday loans come with average annual interest rates that can top 400%, according to the Center for Responsible Lending. However, there are often alternatives that can be less pricey – but you have to do your research. Many studies have shown that payday loans can lead to repeat borrowing — creating a financial hamster wheel of sorts that often ends with the hamster (that would be you) both fiscally exhausted and facing a much bigger debt than originally anticipated.

Next time around, if you know you won’t have the cash to cover the back-to-school necessities, consider shopping around for a personal loan as an alternative.

7. You Shopped Hungry, Tired or Without Enough Time

While it may not seem like personal finance advice, (dare I sound like your mother) you should eat something before you go shopping. If you’re hungry, you’re distracted. If you’re distracted, you’re more likely to let your budget slide, or give in to the pleas of a whining child. It’s always best to find a time to shop when you feel well-rested and unrushed.

If you made any of the above mistakes, it’s not the end of the world. Building good credit is all about progress, not perfection. Hey, there’s always next year.

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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This article originally appeared on Credit.com.

This article by Adam Levin was distributed by the Personal Finance Syndication Network.

Most Students Think Debit Cards Build Credit (They’re Wrong)

Sure, debit cards look almost identical to credit cards, but they’re very different. Among the biggest differences between these products is one of the most important: Debit cards do not have an effect on your credit score.

Debit card activity isn’t reported to the credit bureaus. Because of that, they don’t show up on your credit reports, so they’re not helping (or hurting) your scores.

This is a pretty important distinction, but most college students don’t know that using checks and debit cards doesn’t help your credit, according to a recent report. The data comes from a U.S. Bank survey of 1,640 undergraduates between the ages of 18 and 30 that is weighted to represent the makeup of U.S. undergraduate enrollment.

In a questionnaire about basic personal finance concepts, 60% of students said that using checks and debit cards helps build credit. The truth is you have to use credit in order to build it (and get more), which means you need a loan, line of credit, credit card or an account reported to the credit bureaus to get started. Despite the often-discussed negative impact of student loan debt (which, to be clear, can be very problematic), student loans are a typical credit starter: You can get federal student loans with no credit history, which makes them easier to get than most credit cards.

Of course, if you have no credit, you may still be able to get a credit card, which is generally regarded as the one of the easiest ways to build credit. If going into debt with a credit card has you worried, you can still build credit by using the card for small purchases and paying off the balance every billing cycle. This lets you establish a strong payment history without incurring expensive interest charges. (You can see how credit card impact your credit with a free credit report summary from Credit.com.)

A lot of people prefer debit cards over credit cards because there’s less temptation to spend money you don’t have (and if you don’t enable overdraft protection on your debit card, you can’t spend money you don’t have). The ability to avoid debt while enjoying the convenience of electronic payment makes debit cards an appealing choice, but keep in mind that you’re not building credit when you use one. Assuming you want to someday buy a house, save money on insurance premiums and get reasonable interest rates when you need to finance a big purchase, you’ll want a good credit score. That’s something to keep in mind if you’re using a debit card instead of a credit card.

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This article originally appeared on Credit.com.

This article by Christine DiGangi was distributed by the Personal Finance Syndication Network.

What Hackers Want More Than Your Credit Card Number

Account takeover fraud — which occurs when a cybercriminal gains unauthorized access to an online account — is growing rapidly, a new analysis by a major Canadian cybersecurity company shows.

Vancouver, British Columbia-based NuData Security, which predicts and prevents online fraud, analyzed more than 15.7 million login interactions from May through June and identified 882,340 as high risk or potential account takeover attempts.

“Account takeover is the new credit card fraud,” says Ryan Wilk, the company’s director of customer success.

The most common method of account takeover, he says, begins with obtaining a list of user names and passwords.

New on the Black Market

“Fraudsters employ a variety of techniques to obtain the personal and financial information typically needed to take control of an existing account,” Wilk says. “This can be as simple as Dumpster diving and looking through people’s mail to purchasing packages of Fullz on the Web black market.”

In Dumpster diving, a hacker obtains data about a user, so the hacker can impersonate the user and gain access to the user’s profiles or other restricted areas of the Internet. Fullz is a slang term used by hackers and data resellers for full packages of individuals’ identifying information, which may include a person’s name, Social Security number, birth date, account numbers and other data.

Nearly 60% of more than 500 million online account creations NuData Security analyzed from May through July “were flagged as high risk or fraudulent.” That percentage is a huge increase from 28% flagged as high risk or fraudulent from February through April.

An account creation is the act of opening a new account such as establishing a new user profile and an account on Amazon.com or eBay.

Statistics Point to New Threat

“We’ve seen that account creation fraud has increased by more than 100% since February 2015,” Wilk says. “These cybercriminals or bad actors are finding new ways to conceal their location. They are moving quickly from one IP address to another to steal valid credit card accounts, as opposed to cycling through hijacked credit card information based on lists stolen from databases.”

Nearly half of all account registration fraud attempted in May involved creating false accounts to deliver false product ratings, NuData Security’s analysis shows.

“While review fraud is on the rise, the techniques are getting more sophisticated, and the number was slightly higher than anticipated,” Wilk says.

“Credit card fraud is passé, and account takeover is the new credit card fraud,” he says. “Much like a virus reacts to a vaccine, hackers develop new ways to penetrate security systems as the old methods become ineffective. Shifting tactics is just one way hackers have become more sophisticated in their efforts to stay ahead of detection efforts.”

Fraudsters are moving beyond payment card details, Wilk says, and are instead targeting data such as Social Security numbers, addresses and bank account information.

“The more information criminals collect from an individual, the easier it is for them to actually commit fraud using that info,” he says. “That’s why the recent Office of Personnel Management breach (in which cybercriminals stole information about more than 20 million federal employees, contractors and others) was particularly concerning. The bad actors look for the path of least resistance and are becoming more sophisticated daily.”

Detecting the source of a cyberattack can be difficult because cybercriminals can launch online assaults from infected computers worldwide, Wilk says. From May through July, most attacks observed by NuData Security originated in China and the United States, he says. Other countries from which a large amount of “malicious behavior” originated were Saudi Arabia, the United Kingdom, Malaysia and Brazil.

“The U.S. is home to members of some of the world’s most notorious hacker groups, including Anonymous and AntiSec,” Wilk says. “China has a sophisticated network of hackers. Some are connected to the China’s military, though the extent is unknown, and the government and officials continue to deny China’s involvement.”

Developing countries’ bad behavior can be attributed to “an overabundance of technologically trained young people with low-paying jobs,” he says.

Businesses should protect themselves from fraudsters by implementing user behavioral analytics to help verify valid users, Wilk says. “By implementing user behavior analytics, fraud can be detected and predicted before it causes damage to a business.”

[Editor’s Note: Detection is the first step to stopping new account fraud or identity theft. You should check your financial accounts regularly for signs of fraud. You can also keep an eye on your credit reports and scores for signs of fraud. You can get free annual credit reports under federal law at AnnualCreditReport.com. You can also check your credit scores for free once a month at Credit.com.]

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This article originally appeared on Credit.com.

This article by Gary Stoller was distributed by the Personal Finance Syndication Network.

I Have $210K of Student Loans, But Debt Collectors Stopped Calling. Am I Free?

Almost everyone looks back at something they did when they were younger and thinks, “Yeah, that was stupid.” That can be a particularly painful thought when that something involves taking on student loan debt. Unfortunately, millions of people know that pain, and because of the laws unique to student loans, they may have to live with that pain for a very, very long time.

Bryan, a 30-year-old making about $26,000 a year while establishing a career in the L.A. film industry, is one of them. He borrowed roughly $124,000 about a decade ago to go to film school — about $10,000 in federal loans and the rest from private lenders — but he defaulted in 2009. With interest, he owes more than $210,000. That’s a massive debt load for any undergraduate education, let alone the fact that Bryan went to school for only a year and a half.

“An 18-year-old should not have been allowed to make [the] kind of financial decisions that would wreck a 30-year-old’s life,” Bryan said.

In the 10 years since he left school, he says he’s dealt with nightmarish debt collectors, had his wages garnished and lost out on his tax refunds. Despite having taken out the loans with no co-signer, Bryan said his family received calls from collectors for years. (Bryan asked to remain anonymous so his story wouldn’t find its way to his creditors.)

Then, it stopped. He hasn’t heard from a debt collector in a long time, and he’s now rehabilitating his federal student loans. (If he makes nine consecutive months of on-time payments, the default on the federal loans will be removed from his credit report.) He checked his credit report recently for the first time in years, and he saw that his private student loans had been charged off. (You can get a free credit report summary on Credit.com if you want to see where you stand.)

With no one contacting him about the debt and his federal student loans in rehabilitation, he’s starting to wonder if he can move on with his life and start thinking about things a typical 30-year-old might want to do, like make headway in his career plans, save for retirement or plan to buy a house someday. Understandably, he’s worried about his ability to do this.

“What’s the point in investing and moving forward with your life if it’s all at risk to be taken away?” he said. “I want some reassurance that I’m OK legally.”

There’s no simple answer to this, but here are some of the things Bryan and anyone in a similar situation should know.

Private Lenders Can’t Chase You Forever

There’s a statue of limitations on private student loans that bars creditors from suing borrowers over the debt after a certain period of time. The statute of limitations varies by state, and even if the time frame has passed, some states still allow lawsuits depending on the contents of the loan contract. (You can check your state’s statute of limitations here.)

It’s not easy to figure out if the statute of limitations has expired on your loans. The clock generally starts ticking from the time of your first missed loan payment, but any period of forbearance may not count toward the statute-of-limitations countdown. If you make any payments, you could restart the clock.

“Just to make it even more fun, many notes consider default discretionary,” said Joshua Cohen, a consumer law attorney who goes by The Student Loan Lawyer. “They may decide even if you haven’t paid in 4 years they haven’t declared you in default yet. There’s no clear-cut answer.”

It’s complicated, and it’s not like you want to call up your loan servicer and ask, “Hey, where are we with this whole statute of limitations thing?” In a way, you just have to wait it out and hope you don’t get sued.

What Happens If the Lender Sues?

If the lender sues you over the debt before the statute of limitations expires, you could be ordered to pay. If you haven’t already consulted a student loan lawyer in your state, this would be the time to do that. Even before you get to this point, you may want to go to a lawyer to understand what could and couldn’t happen, rather than try and figure it out on your own or bury your head in the sand. (Not to mention the fact that a judgment will further destroy your likely already bad credit.)

You Can Bounce Back From Massive Student Loan Debt

If Bryan doesn’t get sued (it’s unclear if the statute of limitations has expired on his debt, but given where he lives and the information he has on his credit report, he may be close), he shouldn’t have to pay that six-figure private loan balance. He’ll always technically owe that debt, but the owner of his debt won’t be able to enforce it after the statute of limitations expires, and the charge-off will eventually age off his credit report.

The charge-offs and the statute of limitations don’t have anything to do with each other, Cohen said. The charge-off isn’t really an issue at this point, other than the negative effect it has on Bryan’s credit. He could still be sued if the statute of limitations hasn’t expired, even though the lender charged off the debt. Eventually (seven years plus 180 days from when he missed his first payment, to be exact), the charge-offs should no longer hurt his credit. That, coupled with the possibility he may not get sued for the debt, means he can move on from what he said was a huge mistake (Bryan said that even if he had gotten the degree he started studying for, it would have been worthless).

While waiting for the charge-offs to come off his credit reports, Bryan may be able to start rebuilding his credit. Rebuilding credit is more than just getting rid of the bad stuff — you have to have positive credit references, too, so something like using a secured credit card can help start that process.

A secured credit card requires a deposit (that deposit serves as your credit limit), so that may be a challenge to come up with if you’re already cash-strapped, but if rebuilding credit is the goal, that’s one of the easiest ways to do it. (You can get a better understanding of how secured credit cards work here.)

This probably sounds a little messy and complicated — it is. Still, Bryan is optimistic. He has found ways to be frugal and make ends meet in an expensive city, where he finally has work in the industry he set out to join when he started film school 10 years ago. He said he wishes he would have gone to community college instead of film school (he tried after leaving film school, but it wasn’t financially possible at that point), but he was able to eventually get a job he wanted by doing side work in the film world while also paying the bills with temp jobs. After 10 years of struggling with crushing student loan debt, he hopes he can start moving forward.

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This article originally appeared on Credit.com.

This article by Christine DiGangi was distributed by the Personal Finance Syndication Network.

Labor Day Deals: How to Stay Safe While Shopping Online

The deluge of emails touting Labor Day shopping deals, sales and clearances has begun. And while there are deals to be had in stores, many shoppers will go online this weekend to shop.

Online shopping is fast, easy and incredibly convenient, but it’s important to remember that the information we share on the Internet could easily fall into the wrong hands. From fake digital storefronts to email phishing scams, there are numerous ways scammers and hackers are working to steal innocent people’s valuable personal info. Thankfully, there are some simple steps you can take to make keep yourself safe while making purchases online. Here are a few things you can do to make sure your personal info stays secure.

1. If a Site Looks Unsafe, It Probably Is

Using common sense when visiting any online store can go a long way. If a site’s design is messy, has a nonsensical web address, or has an inordinate amount of pop-up windows, chances are it probably isn’t a safe space. However, just because a site may have an appealing design and doesn’t bombard you with ads, doesn’t mean it’s 100% safe. Checking for accreditations from highly regarded institutions like the Better Business Bureau and consulting consumer protection sites like Fraud.org can give you a better idea of a site’s trustworthiness. Bottom line: If you don’t feel comfortable shopping there, don’t hand over any personal information. That includes your email address, phone number and name. Just because you’ve shielded your credit card number doesn’t mean you’re home free.

2. Make Sure Your Communications Are Encrypted

Before giving away any of your personal information on a website, it’s important to make sure that the site itself is secure.

Most browsers will display a small, closed padlock icon inside the address bar when your connection to a website is encrypted. Essentially, encryption is a way for websites to transform information so that it can only be read by the intended recipient. So, in the case of an online purchase, a website may encrypt the page where you enter your credit card number so that only they’ll be able to see what you entered. You can also check to see if your connection with a site is secure by looking at the URL. Sites with URLs that begin with “https” are secured by what’s called an SSL certificate, which is essentially another way of indicating communication between yourself and the site is encrypted.

You also need to make sure the Internet access you are using is secure. The site may be safe and using proper encryption, but if you are putting out personal information over an unsafe Internet connection you may find yourself with an even bigger problem. Avoid using a public WiFi connection whenever possible. And if you absolutely have to use one, limit the amount of personal information you’re accessing and inputting. Identity thieves and fraudsters aren’t just after your credit card number, they want your login credentials, your answers to security questions and other personally identifying information that can be used to hack the more valuable parts of your identity and finances. Vigilance is key. Monitor your financial accounts regularly and if you believe your identity has been compromised, you may also want to monitor your credit for signs of new account fraud. (You can keep an eye on your credit scores for free on Credit.com, which updates your scores every 30 days.)

3. Keep a Paper Trail

Keeping a record of your online transactions can be a big help in the event you need to dispute a fraudulent charge. To make sure you have everything you need, print a copy or save a screenshot of the product’s page, price, your receipt, and any correspondences with the item’s seller. Should you find any unauthorized charges on your credit card’s statement, call your bank or credit card company immediately. With the information you’ve saved, you should be able to quickly resolve any issues.

It’s also important to note when making online purchases that some credit cards have better protections than others if your purchase isn’t received in good condition, breaks or was misrepresented in some way. The details of each of each credit card’s purchase protection program should be in your cardholder agreement. If you plan to use a credit card often for online shopping, you may want to consider shopping around for a credit card with the best purchase protection plan.

4. Beware of Phishing

While it might be normal to receive an order confirmation email, being asked to click a link or download an attachment to confirm an order is not. Beware of phishing scams and malware spammers who may try to trick you into surrendering valuable information. While many emails of this nature are sorted into spam folders, it isn’t unheard of for one to sneak its way through. However, providing you exercise caution and use some good old-fashioned common sense while checking your emails, you should be able to keep yourself safe from these attacks. Also, never be afraid to call the retailer directly at the customer service line on its website to confirm if an email is from them before clicking a link.

In the end, keeping yourself safe while making online purchases simply boils down to having some basic knowledge of the Internet and using common sense. Providing you’re able to recognize the red flags, have a reliable way to check a website’s quality, and refrain from engaging in any sort of risky transactions, you should be able to shop online without worry.

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This article originally appeared on Credit.com.

This article by Leslie Tayne was distributed by the Personal Finance Syndication Network.

Will Getting Pre-Approved for a Mortgage Hurt My Credit?

Shopping for a home loan means getting your credit pulled. There’s no way around it.

Without taking a look at your credit report, most lenders won’t be able to complete your pre-qualification, much less pre-approve you to purchase a home.

Granting a lender permission to pull your scores – and, yes, they do need your permission – constitutes what’s known as a “hard inquiry.” To be sure, a hard inquiry can ding your credit.

But if there is a hit, it’s typically just a handful of points. Hard inquiries on your credit can be a troublesome sign. But the major credit bureaus also see the value of comparison shopping – and that’s why they cut homebuyers some slack.

Let’s take a closer look at how shopping around for a mortgage will affect your credit and the smartest ways to limit the impact.

Hard vs. Soft Inquiries

Your credit report isn’t just a measure of your financial health. It’s also a powerful identity verification tool, which is in part why employers and insurance providers might also want a peek.

For consumers, that means the reason behind the inquiry plays a role. There are always exceptions, but the big difference between hard and soft inquiries generally lies in their potential to result in new debt obligations.

Hard inquiries can include:

• Mortgage applications
• Auto financing
• Credit cards
• Retail credit accounts

Soft inquiries can include:

• Checking your own credit. You can get your free annual credit reports from AnnualCreditReport.com without dinging your credit, for example. And you can check your credit scores for free on Credit.com without a hard inquiry as well.
• Services that check and monitor your credit (Be careful, though; Paid credit repair services generally don’t fall under this category and can be detrimental to your credit scores.)
• Insurance providers
• Employers

Other types of inquiries toe the line between the two. To be safe, you should ask about what type of credit inquiry will be made if you’re thinking about:

• Signing a mobile phone contract
• Setting up cable, Internet or utility service
• Opening a new bank account
• Increasing an existing line of credit

Creditors want to get a look at your hard inquiries, and for good reason: Every new debt takes a bite out of your monthly budget. If it looks like you’re making sudden, desperate attempts to borrow money, this can raise a red flag for creditors who may be worried about your ability to repay the credit they extend to you.

But don’t panic: Seeking loan pre-approval from multiple mortgage lenders isn’t going to kill your scores.

How Mortgage Pre-Approval & Hard Inquiries Work

Normally, a hard inquiry is a hard inquiry. Where things can change is if you’re rate shopping among multiple mortgage lenders.

First, it’s important to understand that pre-approval isn’t a binding step. You can work toward a pre-approval letter from as many lenders as you like. About a quarter of buyers in a 2013 Zillow survey mistakenly believed they had to close with the lender that pre-approved them.

Second, the credit bureaus have come to expect rate shopping. Rather than count every mortgage credit pull against you, most scoring formulas treat all of these hard inquiries within a certain time period as one, big credit pull.

The time frame varies depending on the scoring firm. For example, the newest FICO scoring models consider all inquiries within a 45-day window as a single hard credit pull. The older versions of the FICO scores work off of a 14-day span, so ask the lender what scoring model they’ll be using.

That gives consumers a solid period of time to work toward pre-approval among multiple lenders. You’ll get a good look at their rates, terms and estimated closing costs without worrying about your credit score taking a nosedive.

Also, FICO scores will ignore any hard mortgage inquiries in the 30 days prior to your scoring, so if you go to a second lender a week after getting pre-approved by the first, your hard inquiry from the first lender won’t be factored into your scores already.

Don’t let the fear of losing a couple points from an inquiry keep you from starting the mortgage-shopping process. You can always have a chat with a mortgage lender about affordability and loan terms without having a hard inquiry, especially if you’ve checked your credit scores recently and know where you stand. Just keep in mind that different lenders use different credit scoring models to get you approved, so their estimates will be just that – estimates – until you ask for a hard inquiry to be done. The key to minimizing the impact of hard credit inquiries is to understand what they are and how they can affect you. Information is your best protection.

Related Articles

• What’s a Good Credit Score?
• How to Get Pre-Approved for a Mortgage
• What Exactly Is a FICO Score?

This article originally appeared on Credit.com.

This article by Chris Birk was distributed by the Personal Finance Syndication Network.