Are Multiple Credit Inquiries Bad For You?

When buying a vehicle from dealerships, it is common to have one’s application processed by different banks and finance companies.  This means your credit may be ran by multiple companies in a very short amount of time.  So, does having one’s credit ran by many companies in a short amount of time have a negative effect on the credit score?  I ran across a blog at the Experian website with some good answers to this.  I have summarized it below.  But if you rather read it the blog, here is the link

Before answering that question, I just want to point out that having multiple finance companies run a credit has the benefit of allowing you to find the best terms for a car loan.  Competition may help you get the best interest rate for instance.  In addition, competition may give you the best chances of getting a car loan if you happen to not have stellar credit.  So, please, don’t deprive yourself of the opportunity to shop around for the best loan terms.

Back to the question at hand, having multiple lenders run your credit for a car loan within a two week period will show as individual inquiries in your credit report, but, would not have as much a negative effect against your credit score expected. The credit report will show the name of the creditor, as well as, month and year that the credit was ran.  This list of inquiries will show on your credit report for many months.  However, companies like Experian claim that such multiple inquiries in such a short period of time are counted as one inquiry for credit score calculations.  That’s good news.  Also, finance companies are savvy enough to understand that seeing several vehicle finance lenders and banks running your credit in such fashion is typically due to the purchase of a vehicle or maybe getting a mortgage.  So, it is less likely that they count it against you in the loan decision process.

Please, keep in mind that in the above scenarios we are referring to multiple inquiries made for the purposes of car loans and mortgages. The above points don’t necessarily work if you decide to apply with multiple lenders in an attempt to get a Personal Loan.  Lenders may tend to view those types of multiple inquires in a short period of time as a negative.  For instance, it may be viewed as borrower’s attempt to get into more debt that they can handle.  Also this will tend to have a bad effect on your credit score for a short time.  One last point, multiple inquires will have less of an effect the further in past they are.  So, don’t be too hard on yourself if you applied to multiple lenders trying to get the best Personal Loan terms.