When you apply for a loan, the lender makes a hard inquiry on your credit report. Hard inquiries can lower your credit score by a few points. The more hard inquiries you have, the lower your credit score will be. However, these effects don't add up in the same way. The more applications you make, the less impact each successive one will have on your credit score.
Here are a few tips to avoid damaging your credit score when shopping for a car loan:
* Get pre-approved for a car loan before you start shopping for a car. This will give you a good idea of how much you can afford to spend and will help you narrow down your search.
* Compare interest rates from multiple lenders before you apply for a loan. This will help you get the best possible interest rate.
* Apply for car loans within 14 to 45 days of one another. If your credit score is otherwise in great shape, auto lenders will discount it if you apply for multiples cars loans in a very small window. However, if your credit is already weak or average, this strategy will likely lead to a significant credit score drop — and maybe not much financial gain.
Applying for multiple cars at once can hurt your credit score, but it doesn't have to be the end of the world. By following these tips, you can minimize the damage and still get the car you want.
