How Will Credit Inquiries Affect My Credit Score?


How Will Credit Inquiries Affect My Credit Score?

When shopping for a used car, many customers are concerned about how applying for credit at multiple lenders might impact their credit score. It's a common worry, but the reality is a bit more reassuring.

Understanding Credit Inquiries

A credit inquiry occurs when a lender checks your credit report as part of the approval process. These inquiries are categorized into two types:

1. Soft Inquiries: These are checks that don't affect your credit score. They happen when you check your own credit, when a lender pre-approves you for an offer, or when an employer checks your credit during a background check.

2. Hard Inquiries: These are the inquiries that can potentially impact your credit score. They occur when you apply for credit or a loan, such as when you apply for a credit card or an installment loan. 

The Impact of Hard Inquiries

The idea that multiple credit inquiries will drastically lower your credit score is a common myth. In reality, the impact of hard inquiries is often minor. According to FICO, which is the most widely used credit scoring model, a single hard inquiry will typically only drop your score by a few points-if at all.

However, if you have multiple hard inquiries in a short period, it can signal to lenders that you're seeking a lot of new credit, which might be seen as a risk. But when it comes to car shopping, there's a built-in protection mechanism.

FICO and VantageScore, the two major credit scoring models, recognize that when you're shopping for a car (or a mortgage or student loan), you're likely to apply with multiple lenders to get the best rate. To accommodate this, these models treat multiple inquiries within a short window-typically 14 to 45 days-as a single inquiry. This means that you can apply for credit at several lenders over a short period without each one individually impacting your credit score.  Take advantage of this exception to get yourself the most favorable terms on your next loan without worrying about the impact of multiple credit inquires related to this one transaction in a short period of time.

This shopping period allows you to compare offers without the fear that you're hurting your credit. Just be aware, the window is for a short period of time, so shopping around for several weeks may count as multiple inquires.

Managing Your Credit Wisely

While the impact of multiple inquiries when car shopping is generally minimal, it's still important to manage your credit wisely:

  • Space Out Other Applications: If you're planning to apply for other forms of credit, such as a new credit card or personal loan, try to avoid doing so around the same time as your car shopping.
  • Check Your Credit Report: Before you start applying for auto loans, it's a good idea to check your credit report. This way, you'll know where you stand and can address any issues that might affect your approval or interest rate.
Conclusion

At Central Vermont Auto Mart, we understand that securing financing is a crucial part of your used car-buying journey. We want to ensure you're well-informed about how credit inquiries work, so you can shop with confidence. Remember, when you're shopping for a used car in Vermont, multiple credit inquiries within a short period are treated as a single inquiry by most credit scoring models, meaning your credit score is unlikely to experience a significant change.

So, if you're searching for a used car or used truck for sale in the Barre - Montpelier, Vermont area and need easy used car financing, we've got you covered. Even if you have less-than-perfect credit, our team specializes in finding auto loans for bad credit situations that work for you. Come visit us today and let us help you drive away in the perfect vehicle.