Publish Date - June 12, 2019
Author: Greg Thibodeau
Does Shopping for Car Loans Hurt My Credit?
If you’re fearful that a car loan application will hurt your credit score, then this is the blog for you. Follow along as we explain how the top three credit reporting agencies typically roll multiple auto inquiries into one inquiry on a continuous, 14-30 day cycle, and why applying for a car loan typically won’t hurt your credit.
Car Loan Shopping Doesn’t Hurt Credit
While shopping for credit can sometimes signal bad news bears to creditors (i.e higher risk), most credit scores aren’t drastically impacted by multiple inquiries from auto lenders within a short period of time.
The top three credit reporting agencies (TransUnion, Experian, and Equifax) understand that people are typically going to shop around when searching for the right auto, home, or student loan. After all, not all financing companies and loan offers are created equal! Shoppers may find varying interest rates and payment plans depending on where they go and when they apply. It’s all about finding the right loan offer for you and sometimes, it takes more than one loan offer to get there.
Lenders also know that you’re probably not trying to buy multiple homes or cars–you’re just trying to find the best rates and terms. Credit scoring systems have evolved over time to reflect this reality.
But You May See Multiple Inquiries on Your Credit Report
While your credit score isn’t likely to take a hit when applying for car loans, you may notice multiple inquiries on your credit report. Each time your credit report is reviewed by a different lender, an inquiry will appear showing who accessed the report and why. This is technically called an “inquiry,” though you may also hear “check” or “pull.”
Inquiries include information about who’s making the inquiry, what it’s for, the date it’s made, and the type of inquiry.
Experian, for one, will list each inquiry that is made in your file for two years, but these inquiries will only be counted as one inquiry when calculating your credit score.
That said, you want to apply for credit wisely. Don’t spread out your loan applications over a long period of time, as this will spread out the credit inquiries, too. As long as inquiries are made within about 14 days, they are counted as just one when your credit score is calculated. Space them out too much and you run the risk of having them be counted as separate inquiries.
And Certain Inquiries CAN Impact Your Credit Rating
A single hard credit inquiry typically won’t play a major role in whether or not you’re approved for financing. Lenders understand that most people compare loan options when buying something as big a house or car.
Still, it’s not a good idea to apply for a bunch of different credit cards and loans at one time. Multiple hard inquiries for different types of credit in a short period of time can signal to lenders that you’re in a financial pickle. They may assume you’re having trouble paying bills, getting ready to rack up debt, or that you’re short on cash—all signs that you could be a risky loan recipient.
Examples of hard inquiries include applications for a mortgage, auto loan, credit card, student loan, personal loan, or apartment rental credit checks.
The lesson? Only shop for one type of loan at a time and don’t drag out your financing applications over a long period of time. If your credit has been hurt in the past, work to build a healthier credit score by paying your bills on time, having a low balance on your credit card, maintaining a long credit history, and applying for new credit sparingly.
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