Will Shopping for Car Loans Affect My Credit History?

We’ve heard it from customers time and time again. They’re afraid to shop for a car loan because they’re afraid that multiple “pulls” on their credit will lower their credit score. But auto loans are different. Let us explain why.

When your credit is pulled for an auto loan (even more than once), it’s ignored for the first 30 days. After that, inquiries are grouped into “sets” – typically a 14-45 day grace period. So, for example, if you had 3 auto inquiries in 12 days, it only counts as one inquiry. (This rule only applies to auto, student loan, and mortgage inquiries). This protects consumers and allows them to shop for the best rate on these types of loans.

However, there are still some guidelines that will help you out:

• Even though you may have up to 45 days, do your homework and try to condense that timeframe – typically within a week or two.
• Don’t apply for other forms of credit during that time period. That may make you appear to be a higher credit risk.
• Keep an eye on your credit score. That prevents unwelcome surprises when you are trying to finalize your loan and helps you to figure out what rates are likely to be available to you.

Also, credit inquiries are a relatively small factor in determining your credit score, accounting for just 10% of your overall score. The more inquiries you have in a 12-month period, the more it will affect your score. But a typical credit inquiry (remember the grouping rule above) will typically drop your score just five points or less.

In short, the benefit of shopping for the best auto loans will far outweigh any impact on your credit. Especially on a large purchase like an auto, you could save thousands over the life of the loan.

Tags: Information, Shopping, Tips
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