Multiple Inquiries When Shopping for a Car Loan

Soft Inquiry vs. Hard Inquiry

Shopping for an auto loan can result in soft or hard inquiries.

A soft inquiry happens when someone checks your credit for non-lending purposes. For example, checking your own credit can be a good idea when you're thinking about buying a car, and that leads to a soft inquiry. Getting prequalified for an auto loan also often results in a soft inquiry. The qualification will tell you if you're likely to be approved and the rates and terms you might receive.

Submitting a loan application or loan preapproval often leads to a hard credit inquiry. In these situations, lenders are checking your credit to see if you'll likely be approved and determine the rates and terms to offer.

Soft inquiries do not impact your credit scores. Hard inquiries can hurt your credit scores, although the impact will depend on what else is in your credit report. Typically, hard inquiries will only decrease your score temporarily by a few points. In some situations, multiple hard inquiries can further decrease your credit score.

Learn more: Hard Inquiry vs. Soft Inquiry: What's the Difference?

How Long Do Hard Inquiries Stay on Your Credit Report?

Hard credit inquiries can stay on your credit report for up to two years.

The hard inquiry is a record of when the creditor requests your credit report, and it only appears in the reports that the creditor checks. For example, if the auto lender checks your Experian credit report, hard inquiries won't be added to your TransUnion or Equifax reports as well.

You generally can't remove a hard inquiry early unless the inquiry was due to someone fraudulently using your identity to apply for credit. However, the impact of hard inquiries decreases over time.

Additionally, FICO^® Scores^Θ don't consider hard inquiries that are over 12 months old. VantageScore^® credit scores include them in your score calculations for the full 24 months, but older hard inquiries may have a very small or no impact.

Can Multiple Car Loan Inquiries Count as One?

Most credit scores count multiple hard inquiries from auto loans that happen during a short period as one hard inquiry for scoring purposes. But the specifics depend on the type of credit score.

• FICO^® Scores: Newer FICO^® Scores treat multiple auto loan inquiries that happen during a 45-day period as one hard inquiry. Older FICO^® Scores use a 14-day window. FICO^® Scores also ignore inquiries from auto loans that happened during the previous 30 days.
• VantageScore credit scores: VantageScore credit scores treat multiple auto loan inquiries that occurred during a 14-day period as one inquiry. VantageScore credit scores don't ignore recent credit inquiries.

There are other differences between FICO^® Scores and VantageScore credit scores, which is why you can have multiple credit scores at the same time. However, hard inquiries are minor scoring factors for both types of scores.

How to Reduce Credit Score Impact When Shopping for a Car

There are several steps you can take to potentially reduce the impact of shopping for an auto loan on your credit scores:

• Check your credit. You can check your credit without hurting your credit scores at any time. Knowing where you stand can help you determine if you'll likely qualify and get a good rate on an auto loan. If you have a low credit score and don't need to buy a car right away, try to improve your credit score before you apply.
• Try to get prequalified. Some lenders offer auto loan prequalifications with a soft credit check. These can help you determine if you'll likely get approved and the loan offers you might receive without hurting your credit scores.
• Time your loan applications. With the hard inquiry timelines in mind, try to shop for car loans online and at dealers within a 14-day period to minimize the impact on your credit scores.

Even if you do all of these, applying for and opening an auto loan could still impact your credit scores. For example, you might see your credit scores drop because you have a new loan with a high balance. However, making your auto loan payments by the due date each month can improve your credit scores over time.

Learn more: Does a Car Loan Help Build Credit?

Don't Hyperfocus on Hard Inquiries

Hard credit inquiries can hurt your credit scores. But the impact is generally minimal, and it often dissipates within a few months. With this in mind, you may want to focus on other factors that could have a bigger impact on your finances: choosing the right car, buying new or used, comparing auto lenders' offers, negotiating the sale price and improving your credit.

If you want to check your credit, compare loan offers and monitor your credit from one account, you can get your FICO^® Score and credit report for free from Experian. You'll also get personalized tips on how to improve your scores and insights on how changes in your credit report affect your score.