If you have decided to purchase a new car and will be financing it, you want to make sure you are getting the best deal possible. This doesn’t mean just the best deal on the car itself, but the best interest rates as well. So you may be tempted to shop around from dealership to dealership to get the best rates. However, you have also heard that multiple credit inquiries hurt your credit score. In this post I’m going to dispel some rumors and discuss whether or not shopping for a better interest rate hurts your credit.
When your credit is checked by a credit card company who wants to offer you a credit card, it’s called a soft inquiry. These do not affect your credit. But when your credit is checked at a car dealership this is referred to as a hard inquiry and does affect your credit.
If you are just applying at one car dealership and are approved, don’t worry about that credit check. However, be careful if you want to go loan shopping from place to place. If you keep getting these hard inquiries done on your report over the course of several weeks, expect your credit score to drop.
By getting these excessive inquiry lookups, it appears to the banks like you are being declined and are desperate to get financing. The danger of having too many credit inquiries is that your score may drop so much that when you finally decide to get a car loan you may no longer qualify.
So what can you do? Only get your credit checked when you are ready to buy a car. Don’t do it if you just want to see what type of rates you can get. If you are ready and don’t like the rates you were offered, you do not have to agree to them. You can go somewhere else to get a different quote. When you do this within a matter of days, it is treated as one inquiry, rather than multiple. Something else to keep in mind is that if you’ve gone to several places and cannot seem to get the rate you want, it’s just not going to happen.