Multiple hard inquiries can impact your credit score, but if you shop for auto loans within a short period (generally 14 to 45 days), most credit scoring models treat these inquiries as a single inquiry. This allows you to compare offers without significantly hurting your credit score.
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.
Dealerships can, and will, check with multiple lenders to see what rates and terms they'll offer you. If your credit isn't great, multiple inquiries may be necessary to find you a loan. The good news is that multiple auto loan inquiries in a two-day span won't hurt your credit that much or for that long.
Hard inquiries can negatively impact your credit score for a few reasons: Perception of Risk: When you apply for new credit, lenders view hard inquiries as a sign that you may be taking on more debt. This can indicate to them that you are in a potentially risky financial situation, which may lower your score.
You cannot remove legitimate hard inquiries from your credit report. Fortunately, hard inquiries have a minimal impact on your credit, and they fall off your credit report after two years. If your credit report contains a hard inquiry that you don't recognize, you have the right to dispute it.
There's no such thing as “too many” hard credit inquiries, but multiple applications for new credit accounts within a short time frame may point to a risky borrower. Rate shopping for a particular loan, however, may be treated as a single inquiry and have minimal impact on your creditworthiness.
Still, you typically need a good credit score of 661 or higher to qualify for an auto loan. About 69% of retail vehicle financing is for borrowers with credit scores of 661 or higher, according to Experian. Meanwhile, low-credit borrowers with scores of 600 or lower accounted for only 14% of auto loans.
A hard credit inquiry could lower your credit score by as much as 10 points, though in many cases, the damage probably won't be that significant. As FICO explains, “For most people, one additional credit inquiry will take less than five points off their FICO Scores.”
Understanding Hard Credit Inquiries
According to the credit-score company Fair Isaac Corporation (FICO), a single inquiry can lower your score by less than five points, but the impact will ultimately vary depending on your credit history.
What does a car dealership see when they run your credit? When they run your credit, they get a report and credit score from one or more credit reporting agencies. This will help them gauge the risk of granting you car financing.
But keep in mind that there are other credit-scoring companies and models, like VantageScore®, that a lender could use. A hard inquiry typically only causes credit scores to drop by about five points, according to FICO. And if you have a good credit history, the impact may be even less.
There's no strict amount of hard inquiries that's too few or too many, especially considering the credit scoring models' rules for rate shopping. For example, if you're buying a new car, you might apply for auto loans from your bank and with online lenders.
Car Dealership Background Checks
This can help dealerships protect themselves and their customers from financial harm. So what kind of background checks DO car dealerships do? Typically, they conduct criminal records search, driving history, credit report, and employment history.
Removing unauthorized hard inquiries may improve your score, though the number of points you gain will vary depending on your credit history. If you have a single, recent hard inquiry, you might gain a few points when it's removed. Older inquiries may have less of an impact.
A dealership checking your credit score is a soft inquiry and won't affect your credit. Any hard credit check triggered by a loan application will appear on your credit report, shaving points from your credit score.
Credit repair companies cannot remove legitimate hard inquiries, and they can't remove inaccurate inquiries any more effectively than you can yourself. You have the right to dispute inaccurate hard inquiries on your credit report for free.
Overall, Credit Karma may produce a different result than one or more of the three major credit bureaus directly. The slight differences in calculations between FICO and VantageScore can lead to significant variances in credit scores, making Credit Karma less accurate than most may appreciate.
There is no minimum credit score required to buy a car, but most lenders have minimum requirements for financing. Most borrowers need a FICO score of at least 600 to get a competitive rate on an auto loan.
However, for auto loans, lenders usually prefer a debt-to-income ratio below 36%. The minimum income necessary to qualify for an auto loan may vary, but most lenders prefer an applicant to have at least $1,500 to $2,000 in monthly income before taxes.
Check Your Credit Score
Your credit score can be a major factor in whether you'll get approved for an auto loan and the interest rate you receive. You can check your FICO® Score☉ for free from Experian.
If you spot a hard inquiry on your credit report, don't sweat it too much. It's there because your credit was pulled by an issuer or lender when you applied for a credit card or loan. And if your credit score does get dinged from it, it's OK. It can bounce back in a few months if you use your card responsibly.
Credit Karma allows you to check your credit report and score for free, without affecting your score. The service doesn't hurt your credit score because it counts as a self-initiated inquiry, which is a soft credit inquiry.
Lenders typically perform a hard inquiry on your credit if you're applying for a mortgage, auto loan, credit card or student loan. Space out your credit applications — about every six months — to avoid major damage to your score.