How Many Times Can You Run Your Credit for a Car?

Your credit history influences the terms and interest rates lenders offer for an auto loan. A strong credit score can lead to more favorable loan terms and lower interest rates, which can significantly reduce the total cost of borrowing. Conversely, a lower score may result in higher interest rates or even loan denial. Lenders use credit scores to assess the risk of lending money, as it indicates the likelihood of timely repayment.

Understanding Credit Inquiries

When you apply for credit, such as a car loan, lenders typically perform a credit check, which can be categorized as either a “hard inquiry” or a “soft inquiry.” A hard inquiry occurs when a lender accesses your credit report to make a lending decision after you have formally applied for credit. This type of inquiry is recorded on your credit report and can cause a small, temporary decrease in your credit score. Hard inquiries remain on your credit report for up to two years.

In contrast, a soft inquiry happens when your credit information is accessed for purposes other than a credit application. Examples include checking your own credit score, pre-qualification for a loan, or promotional offers from lenders. Soft inquiries do not affect your credit score and are only visible to you on your credit report, not to lenders.

How Auto Loan Inquiries Affect Your Score

For auto loans, credit bureaus recognize that consumers often shop around for the best interest rates, which can involve submitting multiple applications to different lenders. To prevent multiple inquiries for the same type of loan from negatively impacting a credit score, a specific mechanism called “rate shopping” or “bundling” is applied. This means that multiple inquiries for an auto loan within a defined period are typically treated as a single inquiry for credit scoring purposes.

The timeframe for this bundling varies slightly depending on the credit scoring model used. For instance, FICO scores generally count multiple auto loan inquiries within a 45-day window as one inquiry. VantageScore models, another widely used scoring system, often consider inquiries made within a 14-day period as a single event. This allowance enables consumers to seek out competitive financing offers without significant penalty to their credit score, and its intent is to encourage comparison shopping, which benefits consumers by potentially securing lower interest rates and better loan terms. This bundling rule typically applies to specific types of loans like auto, mortgage, and student loans, but not generally to credit card applications.

Strategies for Car Loan Shopping

A key strategy involves obtaining pre-approvals from multiple lenders before visiting dealerships. This allows you to compare loan offers, including interest rates and terms, without committing to a specific vehicle or loan, and typically involves a soft inquiry initially, or a hard inquiry that falls within the bundling window. Knowing your loan options upfront provides stronger negotiating power at the dealership.

It is advisable to consolidate your loan applications within the established “bundling window,” which is typically between 14 and 45 days, depending on the credit scoring model. By submitting all your loan applications within this timeframe, they will largely be treated as a single inquiry, thereby mitigating the cumulative effect on your credit score. Before beginning the car shopping process, it is also prudent to check your own credit score and review your credit report for any inaccuracies. This awareness helps you understand your financial standing and address any potential issues that could affect loan eligibility or rates. Limiting applications to only serious contenders and avoiding unnecessary credit applications can help preserve your credit score.