It is very common for a frugal car shopper to visit several lots and banks before making a crucial decision about which car to buy and whom to finance it with. Interest rates and prices vary widely in this industry, and a car shopper with adequate credit should do due diligence. Multiple credit checks can harm your credit, but only within certain situations.
FICO Basics
When you apply for a loan or credit card, most lenders will pull a credit report from the three national credit reporting companies: Equifax, Experian and TransUnion. Your FICO score is a mathematical representation of the results of your three credit bureaus' information. There are two types of inquiries, soft and hard, which affect your credit, or FICO score, differently. A hard pull of your credit, as when you apply for a credit card, reduces your credit score by five points or less under normal circumstances. A soft pull, as when your insurance company investigates your credit monthly to verify your ability to pay, does not affect your credit in this way.
Loan-shopping Exception
When you apply for a home or car loan multiple times, the managers of your FICO score do not count any home or car loan inquiry made within 30 days of your scoring date. For multiple inquiries over the 30-day window, they are all gathered together as one hard inquiry. There are actually three versions of the FICO formula lenders can choose from, but the 30-day rule applies to the most common of the three. The other two versions are the same concept except they change the time frames to 15 and 45 days respectively.
Shopping Alternatives
Some loan shoppers, in order to avoid potential mistakes in coding an inquiry as a loan-shopping one, will merely pull an annual credit report made available free yearly from AnnualCreditReport.com to examine the results. While this free report will not have a credit score, it will give you an opportunity to investigate and correct any negative marks on your credit. You can attempt to present this credit report to your lender to get a general idea whether your credit qualifies for preferred interest rates, although an inquiry will be required before making the loan rates official.
Results
After you purchase your car, regardless of the method of financing it, wait 30 to 60 days and order a copy of your credit report with a FICO score. Investigate it closely to verify you were not charged with multiple inquiries for loan-shopping for your car. If you were, you can dispute the findings of the report with the address on your report. The credit bureau is required by law to validate the blemish or correct it within 45 days.
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