Can shopping for a car loan have an effect on my credit?
Here’s the bottom line: Any change to your credit score from shopping will be a minor price to pay for getting the best deal on a car, mortgage, or student loan. If you have a great credit history, shopping around may have no impact on your credit score at all. And even if your credit history is less than stellar, the impact from shopping around for a loan is likely to shave off between one and five points. On a typical credit score of around 675 that’s not likely to affect you much, especially when you compare that to the hundreds or even thousands of dollars you could save by finding a better interest rate on a loan.
For specific types of loans — auto, mortgage, and student loans – credit scoring models are also designed to take shopping for a loan into account. Let’s say you are looking around for an auto loan and you authorize five lenders to check your credit score. All those credit checks — the industry calls them “inquiries” – should either count as zero or one inquiry, if the inquiries are made in a short period such as fourteen days. If you shop for a mortgage loan at the same time you are shopping for an auto loan, the shopping you do for those two loans should count as two inquiries.
Tip: When you apply for a loan and the lender checks your credit, a credit score is created for the lender. According to one major credit scoring company, any inquiries that took place in the 30 days prior to that scoring will not affect your credit score. So it’s a good idea to do your loan shopping in a timely manner.
The rules on inquiries are different if you are applying for new credit cards. Credit scoring companies consider consumers who apply for several new credit lines in a short period of time to be a higher risk and they adjust credit scores accordingly.
But don’t worry about all those promotional offers for credit cards impacting your credit score. Those promotional inquiries do not count against your credit score.