How to Protect Your Credit When Buying a New Car

by Lyle Daly | Updated July 21, 2021 - First published on Dec. 2, 2018

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Man Taking Keys When Buying New Car

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Don't let car shopping put a dent in your credit score. Learn how you can protect your credit while you get your new car.

Unless you're the rare buyer who's saved enough money to pay for a new car in cash, you'll need to get financing to make the purchase. And when that's the case, you can expect every dealer you visit to ask about running your credit.

This normally isn't a problem, but depending on how long your car shopping takes and how many credit checks you authorize, your credit score could end up taking a hit. To make sure this doesn't happen, you'll need to know how to protect your credit.

How car shopping affects your credit

There's one way car shopping can decrease your credit score: hard inquiries on your credit file. These occur each time a lender runs a credit check to either pre-approve or approve you for a loan.

While you would only get approved on a loan once to buy a car, you can and should get pre-approved through different lenders to compare your financing options. This way, you can go to a dealer knowing exactly what you're able to afford. You can also compare the APR on the dealer's financing offers with the best pre-approval you have.

When you check for loan pre-approvals online, it's a hard inquiry every time you do. If you apply for financing through an auto dealer, they will typically send your information to multiple lenders, all of which will run hard inquiries on your credit.

A single hard inquiry makes a minor impact on your credit score, usually lowering it by five points or less. Multiple inquiries, like you'll have when shopping around for auto loans, can do more damage. Fortunately, there are simple ways to avoid this.

Protecting your credit when buying a new car

The most important step you can take to protect your credit while car shopping is to restrict your auto loan applications to the shortest possible time frame.

Here's why -- credit scoring systems group together hard inquiries made within short periods of time, because it's understood that you're loan shopping. When hard inquiries are grouped together, the effect on your score is the same as a single hard inquiry.

How long do you have? Under the FICO® scoring system, which is the most popular, your window is 45 days. Under the VantageScore system, your window is 14 days.

It's best not to push it. While you have some time to work with, aim to get any pre-approvals and an approval done within as short a span as possible.

Checking potential loan terms with prequalifications

Once you start car shopping, you'll want to have an accurate idea of how large an auto loan you can get and what kind of APR you'll qualify for. But if you apply for pre-approvals, you've started the clock, so to speak. If you don't find a car and get your loan within those 14 to 45 days, you'll end up with multiple hard inquiries on your credit.

The best way around this is to see what you're pre-qualified for. Lenders offer pre-qualification tools, which require less of your personal information and only run a soft credit check on you. Those soft credit checks don't affect your credit at all.

Unlike a pre-approval, a pre-qualification isn't a guarantee of what you can borrow. It gives you an estimate based on the information you provide, but that's enough in the early stages of your car search.

Maintaining your credit through the car-buying process

When you know what you're doing, it isn't too difficult to buy a new car without harming your credit. Stick to pre-qualifications for a general idea of how much car you can afford, and then get your pre-approvals at the end of your search before you visit dealers to make the purchase.

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