You may have heard that applying for an auto loan results in a hard inquiry on your credit. We know that hard inquiries drop your credit score each time a lender looks at your credit report. This may weigh on your mind if you need a car loan, especially if your credit's not in the best shape.
Though the facts about hard inquiries are true, the impact they have on your credit may surprise you. Let's break it down.
Types of Credit Inquiries
There are two types of inquiries that happen when your credit is checked:
- Hard Inquiries – A hard inquiry occurs when your credit report is checked by a lender when you request credit. Hard inquiries do impact your credit score, but the impact they have is minimal – sometimes dropping it only a few points – and varies by inquiry. These inquiries are visible to other lenders for 12 months, and fall off your credit reports after two years.
- Soft Inquiries – A soft inquiry happens when you check your own credit or when a lender solicits you with an offer of credit. Soft inquiries don’t lower your credit score.
The good news is that if you need to get an auto loan, there's a rate shopping window that treats all hard inquiries for the same type of credit as one single hard inquiry, which minimizes the hit to your credit score. The rate shopping window typically lasts between 14 and 45 days, so you should complete your loan shopping in under two weeks to be safe when applying for a car loan.
The Positive Impact of Applying for an Auto Loan
Did you know that, despite the few points you may lose here or there from having your credit checked, the impact can actually be far outweighed by the positive effects of getting a line of credit? It's true. Your credit score is made up of many factors, and each one impacts your total score.
New credit and credit mix are two of those factors. Together, these two categories make up 20 percent of your credit score. The biggest portion of your credit score, however, is your payment history which accounts for 35 percent of your score.
This is why, once you're approved for an auto loan, it's important to make sure all your payments are made on time. Making timely payments has the potential to significantly raise your credit score over time.
Make Those Inquiries Count
Once you decide that the benefits outweigh the risks of applying for a car loan, you still want your inquiries to yield the best results possible. So, instead of driving all around town having each of the dealerships pull your credit, why not skip the headache and have The Car Connection do the searching for you?
We can help you get connected to a dealer near you that knows how to assist people in all kinds of unique credit situations. Thanks to our nationwide network of partner dealerships, we take the hassle out of finding auto financing.
Don't hesitate any longer if you need another vehicle. Get the process started today by filling out our fast, free, and no-obligation car loan request form!