When car-shopping, it is natural for most people to visit several dealerships and check out different cars and ask for finance options.
Every time you ask for what kind of financing you can get, the dealership does a credit check on you and a credit inquiry is placed on your credit report.
Credit inquiries lower your credit score and every credit inquiry takes away about 5 or 6 points from your credit score.
The good news is that the FICO treats all credit inquiries for car loans or mortgages within a thirty day period as a single credit inquiry and not multiple ones. This means that in the thirty days prior to calculation of your credit score, all the credit inquiries are clubbed and treated as only one single credit inquiry.
This helps you in rate-shopping and shields you from getting a hit on your credit score from what seems to be multiple credit inquiries, when you are only seeking one loan.
Things to remember
- This rule does not cover credit cards: If you have applied for multiple credit cards within a thirty day period, then all of those credit inquiries will be treated as separate ones and not clubbed as one.
- Try and get the loan within a thirty day period: Plan out your decision in such a way that you can visit all dealerships and make a decision within a month. This will protect you from a protracted period of credit pulls.
- Check with your bank or credit union first: If you have fair credit, there is a good chance that you will get better terms of finance from your bank or credit union. It is always a good idea to check with them first before turning to the dealer.
If you plan your purchase in advance and are able to do everything within a month, then rate-shopping and car-shopping will not impact your credit score much. However if your car-shopping does get prolonged then be ready for a few inquiries to show up on your credit report.