Shopping for a car loan can result in multiple credit inquiries from various lenders but the inquiries should only count as ONE against your credit scores.
QUESTION: Shopping for a car. A single Dealership ran my credit excessively (11times) with one bureau and 17 with another. Each lender is showing up, which has hurt me. Would this be something I can dispute?
ANSWER: An auto dealership will typically submit a car loan application to multiple lenders to find the lowest interest rate for the customer or to find a lender that will finance a customer. This practice is commonly referred to as “shotgunning.” When a car dealership “shotguns” a loan application, they send it to multiple lenders. In turn, this practice enables lenders to compete for the loan and for the car dealership to help their customer find the best loan terms.
Unfortunately, customers don’t always know signing one credit application can result in a dealership “shotgunning” a car loan application to multiple lenders. Essentially by signing a car loan application, you are giving the dealership a “permissible purpose” to run your credit multiple times.
The good news is that credit inquiries that occur when you are “rate shopping” should only count as ONE inquiry as far as your credit scores are concerned. If done correctly, it should have very little negative impact on your credit scores although each lender will show up on your credit reports. The FICO Scoring system counts all inquiries related to getting an auto loan within a given period of time as a single inquiry.
But the time period for rate shopping can differ depending on what FICO Scoring version is used by a particular lender. Here is a breakdown of the time period for multiple inquiries to be counted as ONE inquiry on the different versions of FICO Scoring:
- FICO ’98: 14 days
- FICO ’04: 30 days
- FICO ’08: 45 days
Keep in mind, each lender chooses which version of the FICO scoring formula it wants the credit bureau to use to calculate your FICO Scores. Currently the typical time-frame is 14-days because most lenders are still using the older version of FICO for auto loans.
All the inquiries you mentioned, if done within a 14-day period, should count as ONE inquiry and not hurt your credit score. However, the inquiries will show up on your credit reports from each lender that ran your credit.
However, even with the provision FICO makes for shopping for a car loan, the system does not always work as it should for scoring purposes. You may need to dispute the inquiries. In this situation you would request the credit bureaus count any inquiries related to car shopping as ONE inquiry.
Even if you shopped for a car over several months, the FICO Scoring System should look on your credit report for auto loan inquiries older than 30 days and if they fall within a typical shopping period, count them as just ONE inquiry.