Does Too Many Credit Inquiries Affect Credit Score?

Does Too Many Credit Inquiries Affect Credit Score?

Posted on July 16, 2022

Today is another client question and answer. This question covers a topic we discuss often so we thought it would make a good blog post. The question was ‘I have used prequalification to find the best car loan but now I have 8 hard inquiries on my credit report. Will it stop me getting a loan?’

Our Guelph auto loans team explains why multiple hard inquiries isn’t ideal but shouldn’t stop you getting a car loan.

Auto loan preapproval and hard inquiries

Auto loan preapproval is similar to getting a quote. You’re asking if someone in your position might qualify for a car loan. It isn’t an application for a loan but it may include a hard inquiry on your credit report.

As a potential lender will need to check your credit report before they provide a quote, it will result in a hard inquiry. That isn’t always made clear when you try to get preapproval.

That’s why prequalification is useful. It isn’t as accurate in its results as preapproval but it only uses a soft inquiry, which other parties cannot see in your credit report.

A hard inquiry is what lenders typically use for applications for credit. They are visible to everyone who checks your report and other lenders will check to see how much debt you have been trying to access and when.

Multiple hard inquiries and auto loans

Not all that long ago, if a lender saw multiple hard inquiries on a credit report, they would begin asking questions about why you were applying for so much credit in such a short time.

As auto loan preapproval usually involves a hard inquiry, this stance has softened. Credit bureaus and lenders now appreciate that multiple inquiries within a short time are usually people shopping around for a good deal.

Where it would count against you or prompt questions, it is now taken as you testing the market. That’s exactly the case with our client.

There are caveats though. All those inquiries should be within a short time period, say a couple of weeks. If you have multiple hard inquiries over the space of a few weeks or months, that will still prompt questions.

Prequalification vs. preapproval

As we mentioned above, auto loan prequalification is a basic premise check to see if you could qualify for a loan. It uses a soft inquiry. It won’t be as exact as preapproval but it won’t be as visible.

Preapproval is a quote and will often use a hard inquiry to check you out. Not all preapprovals use a hard inquiry and some of those that do aren’t clear about it. This is why our client got into the position they were in.

Don’t worry too much about it if you find yourself in a similar situation. As long as all inquiries are within a tight timescale, lenders will assume you’re shopping around and it shouldn’t impact your chances of getting a loan.

When you’re ready for a car lease or loan, get in touch with the Guelph auto loan experts at Northway Ford for great deals on auto finance.

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