If you’ve been vehicle shopping recently, you might have noticed that the car dealership ran your credit multiple times. Don’t panic just yet! We’re here to explain why the car dealership ran multiple hard inquiries on your credit report, and what it means for you.
Why dealerships run your credit multiple times
When you go to a car dealership and submit a loan application, the dealer will typically submit your application to multiple lenders to find you the lowest interest rate. This process is commonly known as “shotgunning” and oftentimes can happen without the customer (i.e. YOU) even knowing. So when a car dealership “shotguns” a loan application, that means they are sending it out to multiple different lender options.
Car loan application rate shopping
By signing a car loan application, you are essentially giving the dealership permission to run your credit multiple times. Rate shopping, another name for shotgunning, is the process of gathering multiple quotes from different lenders to compare offers. It will ensure you get the best loan terms possible, and hopefully save you money.
There are two types of inquiries when it comes to rate shopping: soft pulling and hard pulling. Soft pulling is when a lender prescreens you for a loan. This won’t guarantee loan approval though, and the loan rate and terms may change after you formally submit an application. Hard pulling indicates to lenders that you’re interested in borrowing money. When the financial institution checks your credit score, it will show up on your report and can potentially lower your 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. The FICO Scoring system counts rate shopping, or any inquiries related to obtaining an auto loan within a specific time period, as one single inquiry.
Timeframe & credit scoring models
The time period for rate shopping varies depending on what type of FICO Scoring is used by a particular lender. Here’s a list of the time periods that count multiple inquiries as one on the different FICO Scoring systems:
- 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.
What you can do to avoid too many hard inquiries
- Check if you meet the loan rate requirements to see if you’ll pre-approve or are pre-qualified
- Get your free credit report in advance
- Apply for auto loans within a 2 week period
- Monitor your credit report regularly to make sure you stay on top of all hard inquiries and other factors that impact your credit. You can obtain free copies of your credit report from either of the three major credit bureaus: Equifax, Experian, and TransUnion
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