Finance Facts & Questions

The Truth About Multiple Credit Inquiries
By Michelle Singletary

Thursday, May 5, 2005; E03

When you go shopping for a car or a home, do you become a little concerned when you hear these words: "Can I pull your credit report?"

Lots of consumers bristle because they think this means a credit inquiry may be posted on their credit report. The credit-smart folks out there understand that with too many credit inquiries, their almighty credit scores (generated by each of the three major credit bureaus) could take a hit.

In fact, a reader wrote to me on this very issue: "I hear that every time you test-drive a car the dealership runs a credit check, and since the big three credit-reporting companies penalize you (i.e., lower your credit rating) for more than three credit checks within a certain time period, the test drives can cost you."

Is this reader right?

I put the question to Fair Isaac Corp., the company that created the FICO credit-scoring model many lenders use.

"It's ironic that so much attention gets focused on credit inquiries because they are such a tiny part of the FICO score," said Craig Watts, public affairs manager for Fair Isaac.

For starters, Watts dispels the notion that there is an inquiry quota of three. "That's a myth," he said.

But perhaps it would help if I first explained why the scoring models count inquiries or requests from lenders in the first place. Lenders use scores to assess how risky a borrower might be, and multiple credit inquiries could indicate that someone is having money problems and needs lots of credit.

So here's the truth about credit inquiries, according to Fair Isaac:

· The credit-scoring model recognizes that many consumers shop around for the best interest rates before buying a car or home and that their searching may cause multiple lenders to request their credit report. To compensate for this, multiple auto or mortgage inquiries in any 14-day period are counted as one inquiry.

· In the newest formula used to calculate FICO scores, that 14-day period has been expanded to any 45-day period, Watts said. This means consumers can shop around for an auto loan for up to 45 days without affecting their scores. But the old 14-day rule might still apply at some lenders that aren't using the new version.

The newest FICO version went online at all three credit agencies -- TransUnion, Equifax and Experian -- in 2004, Watts said. Typically, it takes lenders months to adjust their processes so they can accommodate revised formulas -- and some lenders never adjust, he said.

· The FICO score ignores all mortgage and auto inquiries made in the 30 days before scoring. If you find a loan within 30 days, the inquiries won't affect your score while you're rate-shopping.

· Each "hard" credit inquiry (meaning the consumer has applied for some form of credit, prompting the creditor to check the credit report or score) that is counted normally subtracts no more than five points from a person's score. Often, no points are subtracted.

· The score does not count requests that a lender has made for your credit report or score in order to make you a "preapproved" credit offer (you know, those darned offers that crowd your mailbox).

· The formula doesn't count inquiries made by a lender reviewing an account you already have with that lender.

· Inquiries that come from employers are not counted. Nor is it counted when you ask to see your own report or score.

"Realistically, only a narrow group of people has good reason to be cautious about the effect inquiries could have on their FICO score," Watts said.

Here's who might be concerned, according to Watts:

· People who take an unusually long time (several months) to shop for a new mortgage or auto loan.

· Consumers who shop around in the same year for several different lines of credit not associated with a mortgage or auto loan.

· People who know before they begin applying for credit -- presumably from conversations with creditors -- that their credit score barely qualifies them for their desired credit offering.

"We generalize by saying that typically no more than 10 percent of a FICO score's weight is determined by a person's taking on [and searching for] new credit," Watts said. "But for most people, inquiries have little to no influence on their FICO scores."

So there you have it: the lowdown on credit inquiries.




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                                      Finance Q &  A

Q: What are the interest rates for my auto loan? 
A: Interest rates are determined by the actual lenders and are influenced by several factors, including the severity of credit problems, the amount of down payment, and the degree of credit risk. One of our auto loan experts will explain these factors, and tell you exactly what your interest rate will be.

Q: Can I get an auto loan even if I have bad credit?
A: Yes! Our lenders will work with you every step of the way to help you get approved! Our lenders specialize in helping you get the best possible auto loan

Q: Will it help if I have a co-signer on the loan?
A: If your co-signer has good credit status, this will help your chances of getting approved

Q. What if I have repossession?
A. Many of our customers have had repossessions in the past and out goal is to help you  Re-Establish your Credit

Q. What if I have a bankruptcy?
A. Whether it's a discharged chapter 7 or an active chapter 13, we work with many lenders that specifically specialize in auto loans for people who have this specific need.

Q. What if I don't have money to put down?
A. We have many programs that either allow you to put Zero Money Down.

Q. How much income must I have?
A. The usual minimum income required is about $1,200 per mo. But this varies from lender to lender

Q. What if I'm upside down in my trade?
A. In most cases we can get a little extra help from the bank to overcome negative equity.

Q. How much will my monthly payment be?
A. This is determined by several factors. Amount of purchase, interest rate, term and down payment.







Prestige Auto Sales

When you decide to purchase a a quality pre-owned vehicles there are many factors that will come into play.

The amount of the loan, the interest rate and the term you qualify for will all be determined by your past credit history.

Having a good understanding of your credit history can help you decide which options will work best for you. At Prestige Auto Sales we can help you learn more about your credit score, history and work with you and the banks to overcome these obstacles. This is providing there is some past credit history. If not, we've included a section below with the information you will need to know how to get financing at Prestige.


1. On a Scale of 1-10 - How would you rate your credit? Having a realistic idea of your past credit history is helpful for many reasons. Many banks place limitations on the type of car you can purchase- depending upon your credit, you may qualify for one car but not another. It will help save you the headache of falling in love with a car only to have your hopes dashed.

In most cases WE CAN help you rebuild your credit! We'll show you many cars that will work for you and the banks, and go from there. It's a fun, easy process getting to pick out your next car.

When you visit Prestige we can also show you your credit report and score. We will work with you to explain away the negatives on your credit history and focus on the positives so that we can negotiate on your behalf with the banks.


There are four common pieces of information on your credit report. These include your Personal Information, public records and inquiries and credit information.

Personal information: Things such as your first and last name, your current address, phone number, your social security number and current/past places of employment.

Credit information:
This is the bulk of your credit history, and typically carries the most weight. If your credit is listed as "paid as agreed" it will stay on your credit report for years, not leaving until 7 years after the last date of activity. If you have some negative or derogatory marks on your credit, they will stay there for seven years from the last date it was reported.

Auto Loans, Mortgate Loans and Credit Cards can all fall into this category. It's also possible that other creditors could report non-payment here as well.

Public information:
If you've had a bankruptcy, unpaid child support, or credit card charges off's they will appear here. This can also include court judgments against you and these marks can stay on your credit for up to 10 years!

Inquiries:
This section describes everyone who has pulled a copy of your credit report. In some instances these marks can lower your credit each time an inquiry is made, however most banks do offer you the opportunity to try and receive a competitive rate. See our Finance Department at Cocoa Hyundai to see the best course of action.

There are other, even more important factors that come into play as well. If you have poor credit, the following will be even more important than your credit score.

2 Try to be flexable within your budget, but be sure to have an idea of what you can afford before you go shop. Most experts feel that your car payment and related expenses should not exceed 25% of your net monthly income. Be sure to budget accordingly.

3 Have your down payment amount set in advance. Your deposit can be made up of cash, check or even credit cards. If you have a low interest credit card, paying down part of the loan may save you some money over the long term.

Those with less than perfect credit will often be required to put some cash down. This is the banks way of "sharing the risk" with you. The good news is that when you pay off your current car on time, you should be in a much better position the second time around.

4 If you have a trade–in, estimate what your trade’s equity is. This is considered the same as down payment if you don’t have a balance on it. If there is a negative balance, it has to be subtracted from the value of the car to determine it's real value. Websites like Edmunds.com will help you get an idea of the value of your trade before you stop in at Prestige.

However, if you go to one of these websites realize you need to look at “:trade-in” value not “book value” which is used to determine how much the bank will usually finance on a unit. Also remember, that in the end websites such as Edmunds, KBB, and NADA only offer opinions, and their opinions can vary a great deal. The market value of your car may be lower or higher then what is printed on these websites.


                                          


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