Your credit score can be affected by many different things, especially when you ask for new credit. Here’s the difference between a hard credit check and a soft credit check, and what you should know when you’re car shopping.

Why Are Credit Checks Required for Auto Loans?

When you apply for new credit, most lenders review your credit reports and check your credit score. Your credit score is calculated from the information listed on your credit reports, so they go hand in hand.

Your credit reports have information about the lines of credit you’ve taken out, your payment history, how long you’ve had credit, and other important factors. These reports are used by lenders to gauge your overall ability to repay borrowed money.

Your credit score serves as a quick, summarized grade of your credit reports. There are a few credit scoring models out there, but the one most commonly used by auto lenders is the FICO score, which is expressed as a three-digit number between 300 and 850.

Lenders check your credit to help them consider you for a car loan, so it’s important that you know what can hurt your credit, and what is safe. A hard credit check can temporarily drop your score, while a soft check won’t.

Hard Credit Checks

An inquiry is a request for information, so when a lender pulls your credit report, it's reflected on your credit reports as an “inquiry.” When you give a lender permission to review your credit because you’re applying for a new loan, it's called a hard inquiry.

A hard inquiry can drop your credit score a little, but it's temporary. The FICO scoring model keeps track of how many times throughout the year you apply for credit. The more you ask, the more it seems like you’re relying on credit. However, when you’re talking to multiple lenders about the same type of loan within a small time frame, things change.

Rate shopping happens when you apply with multiple lenders for the same type of credit because you’re looking for the best rates and deals that you qualify for. This doesn’t mean talking to three auto lenders reflects three different hard inquiries.

The credit reporting bureaus understand that when your reports are being requested for the same type of credit in a short period of time, you’re shopping around for the best deal. And if you do all your rate shopping within 14 days, only one hard inquiry is reflected on your credit score.

Keep in mind, this doesn’t mean you can talk to a mortgage lender and an auto lender in the same week and have only one hard inquiry on your credit reports. When you’re rate shopping, it has to be of the same type of credit for only one pull to be reflected.

Soft Credit Checks

What Is the Difference Between a Hard and Soft Credit Check?Good news: a soft inquiry doesn’t harm your credit score! When you review your own credit, it's classified as a soft credit inquiry. Additionally, you have the right to request your credit reports from the three major credit reporting bureaus – TransUnion, Experian, and Equifax – for free, once every 12 months.

You’re not the only one that can do a soft inquiry on your credit reports, though.

When marketers ask about your information for credit card offers or emails about getting pre-approved for a loan, these are also soft inquiries, and they don’t lower your credit score, either. The companies that send unsolicited offers look at your credit to see if you qualify for new credit – they don’t want to send offers to borrowers who don’t qualify. Unless you give a lender permission to review your credit reports, all unsolicited offers are soft pulls.

Employers can also do a soft inquiry on your credit. Your credit reports don’t contain just your past and current loan information, they also contain personal information that employers may want to validate.

Car Shopping With Confidence

Use the fact that reviewing your own credit reports won’t drop your score by checking them for errors, duplicates, or accounts you don’t recognize. All three credit bureaus may have different information, and you should know what auto lenders are seeing when they check your reports when you’re applying for a car loan.

Don’t be worried about dropping your credit score drastically because you talked to a few different auto lenders. Remember, only one hard inquiry is reflected if they all review your credit reports within 14 days.

Your credit reports and credit score are a large part of your car buying power. If your bad credit score is stopping you from getting approved for your next auto loan, we want to help with that.

At Auto Credit Express, we've teamed up with dealerships all over the country that have special finance departments. These dealers are signed up with subprime lenders that work with unique credit situations. To get matched to a dealership with bad credit lenders in your area, simply fill out our free car loan request form.