Friday, June 20, 2014

Will Shopping Around For A Car Loan Damage My Credit?

         We hear from customers buying a used car all the time that are worried about making credit inquiries at multiple dealerships while car shopping.  It’s especially worrisome for those with challenged credit because they are worried about damaging their credit any further, but are forced to shop around to find a company that will give them a loan. Like in most other financial situations, people with bad credit are left with few options. 

         First, it’s important to note that all credit checks are not the same. Checking your own credit does not affect your credit score at all. This common myth has been debunked countless times by credit experts. Any consumer that would like to keep track of their credit can and should pull their Equifax, Experian and Trans Union credit reports for free once a year at AnnualCreditReport.com.  While it is true that your credit score could possibly be affected by running multiple credit inquiries in a short period of time, the affect is minimal and temporary. FICO has released
information about how credit scores are calculated and based off of the information made public, FICO is more concerned with consumers opening multiple credit lines in a short period of time, and even this kind of activity makes up barely 10% of your score.  Research shows that FICO can actually predict when people are running credit for kinds of loans that people shop for rates on like mortgages, auto loans and student loans and will ignore those types of requests.  Most consumers’ scores are not affected at all by this type of activity.

         For those with good credit, shopping around and allowing a temporary dip in your credit score can be much less expensive than over paying for an auto loan. For consumers looking to obtain a bad credit auto loan, shopping around may be unavoidable in order to find a dealership that will give you a chance.  Paying an installment loan like one for an automobile is one of the best ways to rebuild credit.

         Credit experts agree that that the benefits of shopping around for a loan far outweigh the possible minimal and temporary harm of running your credit a few times. The most important items FICO considers when calculating your credit score is paying your bills on time and having minimal debt and if you’re looking to maintain or rebuild your score catering to these categories is the only sure way to have a serious effect on your score.