Even car buyers that have experienced problem credit should know how shopping for a car loan might impact their credit scores.
It's especially important that consumers with damaged credit understand the impact that traveling from dealer to dealer or submitting multiple online car loan applications and the credit inquiries that follow might have on their credit scores.
Here at Auto Credit Express we feel this way because for over twenty years we've been helping car shoppers searching for online auto loans locate those dealers that can offer them their best chances for auto loan approvals.
In some cases these people may initially try to find a dealer this on their own – which is fine. But if their application gets turned down at one or more dealers, they may get discouraged and decide to hold off; in some cases this decision can end up lowering their credit scores even further.
In other words, can car shopping ding your credit scores and, if so, how can this be avoided?
Credit scores and inquiries
To answer these questions we decided to go right to the source. Fortunately, a FICO blog article discusses how FICO scores are affected when consumers apply for a specific type of credit – such as an auto loan.
According to FICO, auto loan inquiries "that occur 30 days prior to scoring have no effect at all on the FICO score." Outside this 30-day period, any inquiries that happen within any 45-day period are treated as just one inquiry (provided they are all for an auto loan).
The same thing will happen if you either decide (because you're rate shopping) or are forced (because you are looking for a loan approval) to drive from dealer to dealer.
The advice FICO has for you: do your shopping in a "reasonably short period." It also helps if you "do your homework."
If borrowers either know or suspect that they have bad credit we think part of this "homework" should include obtaining copies of all three of credit reports and paying for at least one credit score so they'll know where they stand, credit-wise.
Inquiries that don't influence FICO scores
According to FICO, the only inquires that affect their credit scores are "those that result from when a consumer actively applies for new credit." Therefore, they're not influenced by:
• Consumer disclosure inquiries — consumer requests for a copy of their individual credit report
• Promotional inquiries —lender requests to review for pre-approved credit offers.
• Account review inquiries — lender requests to review existing accounts they hold
• Employment inquiries — requests from potential employers
• Insurance inquiries — requests from insurance companies
Credit score impact results
The article notes that a single inquiry will typically affect a FICO score by less than five points, although this varies and is usually greater if a consumer has few accounts or a short credit history.
Since inquiries are only one part of the "search for new credit" category and that category only accounts for 10 percent of a score, inquiries overall tend to account for less than 10 percent of credit scores.
Why FICO considers inquiries
So if inquiries account for less than 10 percent of your credit scores, why should they even affect them at all?
According to FICO, consumers looking for credit are riskier than those who aren't. In fact, their data has shown that people with six or more inquiries on their credit reports are eight times more likely to declare bankruptcy when compared to consumers with none at all.
But even saying that, FICO points out inquiries still play a minor role when judging risk – outweighed by both bill paying habits and the overall debt of a consumer.
As we see it
Borrowers with questionable credit should understand why and how credit inquiries can ding their credit scores. It's also important to know that credit scores can be impacted by how long it might take find the right kind of dealer – which is where web sites like ours come in.
Specifically, Auto Credit Express matches people that have experienced problems with their auto credit with new car dealers that can offer them their best opportunities for approved auto loans.
So if you're ready to reestablish your car credit, you can begin now by filling out our online auto loan application.