Demystifying Multiple Credit Inquiries: A Guide for Car Buyers

If you’ve recently gone car shopping, you may have observed that the dealership pulled your credit report more than once. We’re here to explain why the car dealership made several hard inquiries on your credit report and what it means for you, so don’t panic just yet.

You’re not alone if you’ve ever filled out a loan application at a car dealership and then been shocked to see several inquiries on your credit report. Dealerships frequently engage in this “shotgunning” technique, which confuses many prospective customers and raises worries about possible negative effects on their credit score.

But fear not, fellow car enthusiast! This guide will shed light on why dealerships run your credit multiple times, explain how it affects your score, and provide actionable steps you can take to minimize any potential negative impact.

Understanding the Dealer’s Perspective: Why Multiple Inquiries Happen

The majority of the time, a dealership will send your loan application to multiple lenders after you submit it. Rather, they “shop around” for the best terms and interest rate for you by submitting your application to several lenders. This technique, sometimes referred to as “rate shopping” or “shotgunning,” is intended to help you, the customer, by guaranteeing that you receive the most affordable loan options.

But in order to determine your creditworthiness, every lender will run a hard inquiry on your credit report. Your credit score may be momentarily lowered by these inquiries, particularly if they happen quickly.

The Good News: Minimizing the Impact on Your Credit Score

The good news is that rate shopping for auto loans is recognized by the FICO scoring system, which also considers multiple inquiries made within a given time period to be one inquiry. This implies that several inquiries pertaining to a single auto purchase won’t lower your credit score.

Here’s the timeframe for each FICO scoring model:

FICO ’98: 14 days
FICO ’04: 30 days
FICO ’08: 45 days

It’s important to note that each lender can choose which FICO scoring model they use, so the timeframe may vary depending on the lender

Proactive Steps to Protect Your Credit Score

While the FICO scoring system protects you from excessive inquiries during rate shopping there are additional steps you can take to further minimize the impact on your credit score:

Check Your Pre-Approval Eligibility: Before visiting dealerships, check your eligibility for pre-approval with various lenders. This will give you an idea of your creditworthiness and potential loan terms, allowing you to focus on dealerships that align with your financial situation.
Obtain Your Free Credit Report: Equifax, Experian, and TransUnion are the three main credit bureaus. Request your free credit report from them before applying for any loans. This enables you to check your credit history for any mistakes or inconsistencies that might lower your credit score.
Apply for Loans Within a Short Timeframe: Try to apply for all your auto loans within the timeframe specified by your chosen FICO scoring model. This will ensure that multiple inquiries are treated as a single inquiry, minimizing the impact on your score.
Monitor Your Credit Report Regularly: Regularly monitoring your credit report allows you to identify and address any potential issues that could affect your score. You can obtain free credit reports from each bureau once a year at AnnualCreditReport.com.

While multiple credit inquiries from a car dealership may seem concerning, understanding the reasons behind it and the FICO scoring system’s protections can alleviate your worries. By taking proactive steps to check your pre-approval eligibility, obtain your credit report, and apply for loans within a short timeframe, you can minimize the impact on your credit score and navigate the car buying journey with confidence.

Remember, knowledge is power. By understanding the process and taking the necessary precautions, you can ensure a smooth and successful car buying experience without jeopardizing your credit score.

Good news: multiple car dealership inquiries should count as 1 inquiry

If done properly, shotgunning should have little to no effect on your credit score. Rate shopping, or any inquiries about getting an auto loan within a certain time frame, are counted as a single inquiry by the FICO Scoring system.

Timeframe & credit scoring models

Rate shopping window durations differ based on the type of FICO Scoring that a given lender employs. The time frames that, according to the various FICO Scoring systems, count multiple inquiries as one are listed below:

FICO ‘98: 14 Days
FICO ‘04: 30 Days
FICO ‘08: 45 Days

Every lender has the right to choose whichever version of the FICO scoring system they want to use.

Wow! The Car Dealership Ran My Credit 11 Times!

FAQ

Why did the dealership run my credit so many times?

Although dealerships may have a preferred lender, some dealerships choose to “shotgun” your credit information to multiple lenders, which is a tactic dealers use to make lenders compete to give you the best rate. Many dealers contact around five lenders and then choose a single loan offer to present to you.

How many times should a dealership run your credit?

When a consumer seeks financing through an auto dealership, the financing may be done by the dealership itself or by a third-party lender. If the dealership is, itself, the lender, a credit application permits the dealership to pull a consumer’s credit one time.

What happens if your credit is run multiple times?

If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Looking for new credit can equate with higher risk, but most Credit Scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time.

How many inquiries is too many for a car loan?

Since hard inquiries affect your credit score and what is found may even affect approval, you might be wondering: How many inquiries is too many? The answer differs from lender to lender, but most consider six total inquiries on a report at one time to be too many to gain approval for an additional credit card or loan.

What happens if a car dealership runs a credit check?

Hard Inquiries: When a car dealership runs a credit check, it is considered a hard inquiry, which can temporarily lower your credit score. Hard inquiries indicate that you are actively seeking credit, and repeated inquiries within a short period of time can suggest financial instability and increase the perceived risk to lenders.

Should you let a dealer pull your credit score?

Then, don’t let a dealer or bank actually pull your score for real until you’ve done your test drives and shopped and you’re ready to make a purchase. Letting a dealer pull it “just to see” is yet another trick they’ll use to make you feel committed to them vs going somewhere else.

Does applying for multiple car loans affect your credit?

If you’re using a dealership, the financing department will run your credit with multiple lenders to try to find the best offer and loan terms. Or perhaps, you might choose to shop around for different lenders to see what auto loan options you qualify for. Either way, applying for multiple car loans could affect your credit.

How do I know if a dealer has multiple inquiries?

There may be a chance that the dealer you went to uses a similar system for financing loans and knew that it would show up as multiple inquiries on your credit report. I recommend doing as another user stated and use the credit report done by the initial dealer to at least get rough pricing estimates from other dealers.