How car shopping can hurt your credit score

Don't Waste Your Money
Posted at 9:00 AM, Mar 31, 2016
and last updated 2016-03-31 09:00:37-04

Sometimes trying to save some money can cost you in the long run.

Case in point: A woman who was trying to get the lowest rate on a car loan, by checking multiple used car lots.

But that idea may have backfired.

Shopped Around For Best Loan

When she needed to buy a used car, Valerie Thompson decided to shop around to find the used car dealer with the best loan rates.

"I actually applied at 4 different dealerships,"she said.

But then what seemed like a great idea resulted in a mess, she says.

"I started receiving letters from all of these different banks and financial places where my credit had been pulled," Thompson told us.

More Than Two Dozen Credit Checks

So she checked her credit report and was stunned: The four car lots had together applied for 27 different loans.

"One of them actually ran my credit 8 times," she said.    

She believes the 27 inquiries lowered her credit score 20 points since she last checked.

In the auto business, this is known as "shotgunning," which is when a dealer applies to multiple lenders to find you the best rate.

It's legal, and fairly common in the used car business, as car lots compete for your business.

Experian says it counts shotgunning "as a single inquiry, as long as it happens within a 14 day period."

But it can be a problem when you apply at multiple dealers, or exceed the 14 day window.

Thompson just wants it all taken off her file, but found that is easier said than done.

"I wrote to the credit bureau to try to get the inquiries taken off. And they sent me a letter telling me I needed to talk to the dealerships. The dealerships said I needed to contact the banks. The banks sent me back to the dealerships," she said.   

We're contacting the bureaus to see if they can adjust their report.

How to Protect Yourself

The bottom line: you agree to shotgunning when you sign a car dealer's loan application. You are authorizing them to find a loan for you, and "check with lenders."

Because of that, you may not want to apply for loans at multiple dealers at once.  If one dealer makes 6 or 8 loan inquiries, that should result in one "hard inquiry" on your credit.

But once multiple used car lots start inquiring, that can create issues, as Thompson discovered.

That way you don't waste your money.


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