Auto lenders will often view your credit report prior to offering you an auto loan. The information in your report determines your FICO credit score, which runs from 300 to 850. This information will impact the terms of your auto loan, including the interest rate that you may be charged and whether or not you are required to submit a down payment. It's important to understand how your credit is impacted when multiple auto lenders pull your credit report.
Inquiries
An inquiry occurs whenever someone views your credit report. There are two types of inquiries: A hard inquiry occurs when you apply for credit. The lender will view your credit and this review is recorded on your credit report. A soft inquiry occurs when your credit report is viewed for reasons other than an application for credit, such as when you view your own report or when the report is viewed by a company with which you already have an account. Soft inquiries also appear on your credit report.
Considerations
Inquiries remain on your credit report for up to two years. A soft inquiry does not impact your FICO credit score, but a hard inquiry may. How any inquiry impacts your score depends upon the other information present on your report. According to FICO, one inquiry may not damage your score but if it does, it may drop your score by fewer than five points; however, multiple inquiries in a short window of time may result in a larger hit to your credit score. When calculating your score, FICO only considers hard inquiries from within the previous 12 months.
Rate Shopping
When consumers shop for large purchases, such as a car or home, it isn't uncommon for them to apply to more than one lender in an effort to obtain the best rate. FICO calls this rate shopping and makes an exception for it when calculating your score. If you apply to several auto lenders within a two-week period, FICO will consider those multiple inquiries as one single inquiry. This will reduce the negative impact of those inquiries on your credit score.
Federal Law
The Fair and Accurate Credit Transactions Act (FACTA), an addendum to the Fair Credit Reporting Act, gives each consumer the right to order one free credit report each year from the main credit bureaus: Equifax, TransUnion and Experian. Inquiries tell you who has accessed your credit file, so it's important to check your report at least once a year. If you notice inquiries that are unfamiliar to you, not only can this potentially impact your credit but it could also mean you are the victim of identity theft. To order your free report, visit the official site established under FACTA: AnnualCreditReport.com.
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