Does Your Credit Score Go Down When a Car Dealership Runs Your Credit?
If you’re in the market for a new car, you may be wondering how the credit check process at the dealership affects your credit score. Many car buyers are concerned that allowing a dealership to run their credit will cause their score to drop The good news is that in most cases, a single credit check from a dealership will only cause a minor, temporary dip in your score Here’s what you need to know about how dealership credit checks impact your credit score.
What Happens When a Dealership Checks Your Credit?
When you apply for financing at a car dealership the dealer will likely submit your application to their preferred lender or lenders to review your credit profile. This involves the lender performing a “hard inquiry” into your credit history. Hard inquiries are credit checks that can impact your score, unlike “soft inquiries” like when you check your own credit.
Hard credit inquiries from auto lenders will appear on your credit report and may cause a small drop in your score However, the effect is usually minor, with a single inquiry lowering your score by only a few points The impact also doesn’t last very long, with your score typically rebounding in just a few months.
One thing to note is that if the dealer submits your application to multiple lenders, the credit bureaus will lump all of the hard inquiries from that shopping period into one inquiry event. This prevents your score from being damaged by numerous inquiries for the same purpose. As long as the inquiries occur within a short window, such as 30 days, they won’t hurt your score any more than a single check.
How Much Could My Credit Score Drop?
Most sources estimate that a single hard inquiry from an auto lender will cause a 5 to 10 point drop in your score. However, for borrowers with excellent credit, the impact could be even less pronounced. Those with pristine credit tend to experience smaller dips from occasional credit checks.
The impact also diminishes fairly quickly, returning to neutral within 6 to 12 months in most cases. After two years, the inquiry will drop off your report altogether and stop affecting your score. As long as you continue practicing good credit habits, like making payments on time, your score will rebound from the inquiry right away.
Factors That Influence the Credit Score Drop
While most people see a relatively small dip from a dealership credit check, there are factors that can influence how much your score is affected:
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Your starting credit score – In general, people with excellent credit tend to experience less of an impact than those starting with fair or poor credit. If your score is on the lower end, plan for the maximum estimated dip of 10 points.
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Number of recent inquiries – If you’ve had multiple credit checks recently, another inquiry could lower your score more. Space out auto loan applications by at least 6 months when possible.
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Your overall credit profile – If the rest of your credit history is pristine, with a long credit lifespan and perfect payment history, your score will be more resistant to new inquiries.
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Credit scoring model used – Different credit scoring models may weigh inquiries differently. For example, VantageScore typically shows less of an impact than a FICO model.
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Other new accounts opened – New credit inquiries are more detrimental if you’ve also recently opened new credit accounts. Try not to apply for multiple loans/credit cards close together.
How to Minimize the Credit Score Impact
If you want to buy a car but are worried about your credit score dropping, there are steps you can take to minimize the damage:
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Shop for financing through a single hard inquiry – Many lenders allow you to pre-qualify with a soft inquiry before submitting a full application. This allows you to compare loan options without multiple hard checks.
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Allow at least 6 months between application dates – Letting some time pass between auto loan applications gives your score time to rebound before the next inquiry.
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Review reports for errors – Incorrect information on your credit reports can make your score more sensitive to new inquiries. Scan reports and dispute errors before applying for a car loan.
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Hold off on new credit – Recent new accounts in addition to an auto inquiry can heighten the score impact. Avoid opening new credit cards or loans close to your car shopping date.
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Ask the dealer to submit to one lender – Politely ask the dealer to only send your application to their top lender pick to avoid multiple inquiries.
As long as you have generally positive credit, there’s no need to fear a dealership credit check. While it may cause a small, temporary drop, responsible credit use will quickly negate the effects. Focus on practicing good habits over the long term, and keep credit inquiries spaced out, and your score will easily withstand occasional financing checks. With some preparation, you can shop for auto financing with confidence.
Why Do Hard Pull Inquiries Affect My Credit Score?
A hard pull inquiry can lower your credit score slightly as theyre showing you are actively seeking credit. This isnt much of a worry to lending organizations and as such your credit score is only lowered by a small amount. What they are looking out for is when you apply for credit from a number of places in a short period of time. This could suggest youre rather desperate for credit, raising some flags and temporarily lowering your credit score.
What Is A Soft Pull Inquiry?
In the U.S., our credit score can dictate how much a lending organization is willing to lend us. This score is held at three large credit rating companies who keep a record of how each person is handling their credit decisions.
Someone who has made bad credit choices in the past, such as defaulting on payments or going bankrupt, is seen as a higher risk and their credit score will be lower. Someone who has always made payments on time, owns property, and has shown they have been able to handle multiple credit cards at a time will generally have a better credit rating because they appear less risky.
Seemingly innocuous activities can have an effect on your credit score. Closing a credit card can cause your credit score to drop, for example. Another thing to consider is that the credit rating companies may have errors in the information on your past. In this case, it is advised to seek the help of a credit repair company who can help you to quickly repair your credit score.
Some companies will at some point need to check your credit score. Of course, when you apply for a house mortgage, for example, your credit score will need to be checked, but there are other times where your credit score is queried – such as for a background check. This is why there are two main types of credit check inquiry.
Also known simply as soft inquiries, soft pull inquires typically happen when someone or a company wants to query your credit score but does not necessarily want to give you credit immediately. When a lending organization pre-approves you for a loan they will normally have performed a soft pull inquiry.
The important things to note about soft pull inquiries are that they dont require your permission but they dont ever affect your credit score.
When a car dealership offers pre-approval for a bad credit auto loan, then they will be making a soft pull on your credit score. This means getting pre-approved for credit does not affect your credit score.
Also known simply as hard inquiries, hard pull inquiries typically occur when a company checks your credit rating with a view to giving you credit. At this point, theyre essentially putting in a formal notice that credit is being sought.
A hard inquiry is noted on your credit report and will typically stay there for two years. A hard pull inquiry will slightly lower your credit score.
Do NOT Let a Car Dealership Trick You into Pulling Your Credit
FAQ
How much does your credit go down when a car dealership runs your credit?
Consequently, your credit score will drop by a few points for each hard inquiry. According to Experian, hard inquiries will remain on your credit report for up to two years, but their impact on your credit score should diminish to zero within the first 12 months.
Is it normal for your credit to go down after buying a car?
Why does your credit score drop after buying a car? It likely dropped because the lender has to run your credit to approve you for a car loan. This is called a hard inquiry. Continue to make on time and consistent car payments and your score will quickly go back up.
How to avoid car dealerships running your credit?
You can also secure auto financing through your bank or credit union before going to the dealership. If you already have financing approval from your financial institution, you don’t need to deal with the dealership’s credit application. You can also freeze your credit to avoid unwanted credit checks.
How many points does your credit drop when applying for a car?