How Getting Pre-Approved for a Car Loan Can Affect Your Credit Score

Getting pre-approved for a car loan is a savvy financial move, but it can temporarily ding your credit score. Here’s a look at how the process typically impacts your credit.

1. The Application Triggers an Inquiry: When you apply for pre-approval, the lender requests your credit report from one or more credit bureaus. This action results in a hard inquiry on your credit file.

2. A Temporary Score Dip: A single hard inquiry can cause a minor, temporary drop in your credit score, usually by fewer than five points. This reflects that you are actively seeking new credit.

3. The "Rate Shopping" Window: Credit scoring models account for shopping around. Multiple auto loan inquiries within a short period (typically 14 to 45 days) are usually treated as a single event, minimizing the impact on your score.

4. Long-Term Effects: The small dip from the inquiry is short-lived. Securing the loan and making consistent, on-time payments will ultimately have a much more significant and positive impact on your credit history over time.

How Much Will Getting Pre-Approved for a Car Loan Affect Your Credit Score?

Getting pre-approved for a car loan can temporarily affect your credit score, but the impact is often minimal. Here are a few key factors to consider when you begin the application process.

• Hard vs. Soft Inquiries. A pre-approval application typically results in a hard inquiry on your credit report. Unlike a soft inquiry, this can cause a slight, temporary dip in your score as it indicates you're actively seeking new credit.
• Rate Shopping Window. Credit scoring models provide a "rate shopping" window, usually 14 to 45 days. Multiple auto loan inquiries within this period are treated as a single event to minimize any negative impact on your score.
• Minimal Score Drop. For most people, a single hard inquiry will only lower their credit score by less than five points. This minor drop is temporary, and your score typically recovers within a few months with responsible credit management.

How You Can Avoid Getting Pre-Approved for a Car Loan Affecting Your Credit Score

Opt for Soft Inquiry Pre-Qualifications

Many lenders can pre-qualify you for a loan using a soft credit inquiry, which does not impact your credit score. This process gives you a reliable estimate of the loan terms you might receive, allowing you to assess your options without any negative credit implications.

Bundle Your Loan Applications

Credit scoring models typically group multiple hard inquiries for the same type of loan into one if they occur within a short timeframe, usually 14 to 45 days. By submitting all your applications close together, you can effectively shop around while minimizing the impact on your score.

Ways to Improve Your Credit Score

Improving your credit score is an achievable goal, and with the right strategies, anyone can work towards better financial health regardless of their starting point. According to one expert guide, most people see meaningful changes within three to six months of consistent, positive behavior.

• Monitor Your Credit Reports: Regularly obtain your free credit reports from the three major bureaus—Experian, TransUnion, and Equifax. Disputing any inaccuracies you find is a simple way to potentially boost your score.
• Establish Automatic Bill Payments: Since payment history is the most significant factor in your score, setting up automatic payments is the best way to ensure you never miss a due date.
• Reduce Your Credit Utilization Ratio: Aim to keep your credit utilization below 30% of your total available credit. You can do this by paying down balances or requesting a credit limit increase.
• Become an Authorized User: Ask a trusted family member or friend with a strong credit history to add you as an authorized user on one of their accounts. Their positive payment history and low utilization can benefit your score.
• Diversify Your Credit Mix: Lenders prefer to see that you can manage various types of credit responsibly. A healthy mix of revolving credit (like credit cards) and installment loans (like auto or personal loans) can improve your score.
• Limit Hard Inquiries: Only apply for new credit when necessary, as each application can temporarily lower your score. When shopping for loans, use prequalification tools to compare rates without affecting your credit.

The Bottom Line

Getting pre-approved for a car loan requires a credit check that may slightly and temporarily impact your score. Shopping for rates within a short period usually counts as a single inquiry.

Frequently Asked Questions

Does getting pre-approved for a car loan hurt your credit score?

Not necessarily. Most initial pre-approvals use a soft credit inquiry, which does not affect your score. A hard inquiry only happens when you formally apply.

How many car loan pre-approvals can I get without hurting my credit?

You can apply with multiple lenders. Credit bureaus typically treat all auto loan inquiries within a 14-45 day period as a single event to minimize credit score impact.

What’s the difference between a hard and soft inquiry for a car loan?

A soft inquiry is a preliminary check for pre-approval and doesn't affect your credit. A hard inquiry is for a formal application and can temporarily lower your score.