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Will Pre-Qualifying For a Car Loan Affect My Credit Score?

So you are wanting to buy a car but not quite sure how much you can afford to spend? Well, there is a way around this to help you before you set out to research cars online or even visit the dealership.  Pre-qualifying for a car loan may scare you off as you are unsure about the consequences it will have on your credit score. Autoresource.internetautoguide.com tell us the pro’s and cons of pre-qualifying for a car loan…

“While the majority of your credit score is made up from your payment history and your current credit utilization ratios, those prequalification inquiries sometimes can make your credit score take an unwanted hit. Of course, how and when you prequalify also can determine how much your score is impacted.

Type of Inquiry

When you prequalify for a loan, your credit report is “pulled,” and it can be a “hard” or “soft” pull depending on where you prequalify. A hard pull typically is done by a financial institution or lender looking at your credit report to determine your lending risk. A soft pull occurs when a company uses your credit report for a quick inquiry to see if you have credit, and your score. Soft pulls don’t hurt your score, but hard pulls can take your score down a few points, and remain on your report for up to two years, according to Credit Karma.

Timeframe

Prequalifying is a good idea, but only if you do it within a short time between the qualification inquiry and actually getting your new car loan. Time periods can vary, depending on the credit reporting agency; typically, if you prequalify with multiple banks and lenders, and receive your loan within 30 days, the inquiries do not individually add up on your credit report.

Online Qualifications

Prequalifying online may be convenient, but it has the potential to hurt your credit score. This is because online qualifications use hard pulls. In addition, online prequalifying can allow multiple lenders to generate hard inquiries, which add up. Instead, visit a local bank or credit union and have your credit pulled just once.

Your Current Score

Your current credit score and history are important when prequalifying. According to (Fair Isaacs Corp. (FICO), your payment history and the total amounts owed make up 65 percent of your score. So paying your bills on time and keeping minimal balances on your credit cards and other credit accounts can keep your score at an optimum level. If you only open new credit accounts or apply to them when they’re needed, inquiries do not impact your score as much as a person who frequently applies for new credit – especially opening multiple credit accounts at a single time.

Via: autoresource.internetautoguide.com

For more hints and tips on finding the best car insurance and buying the best car for you check out our hints and tips blog page.

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