Each time you apply for a new revolving account like a credit card, your lender will initiate a hard credit check.

That adds an inquiry to your credit report, which can take points off your credit score. If you apply to multiple credit cards at once, you’ll undergo a hard pull each time.

However, that’s not always the case with installment debt like a personal loan. For example, if you submit multiple car loan applications, they count as one inquiry if you time them correctly.

Here’s what you should know about the effect applying for multiple car loans has on your credit score and the best ways to lessen the impact.

Do Multiple Car Loan Applications Hurt Your Credit?

If you submit multiple car loan applications within a short enough time window, you can minimize the damage they do to your credit score.

As long as they’re close enough together that it looks like you’re rate shopping, all of them count as a single loan application.

Rate shopping involves applying to multiple lenders and comparing each offer to see which one will save you the most money and offer the best terms. But this only applies to installment accounts, like car loans, mortgages, and student loans.

Unlike revolving accounts, installment accounts inevitably accrue interest. There’s no way to avoid it, which means your interest rate significantly impacts your monthly payment.

Getting even a slight interest rate reduction from a different lender can save you hundreds of dollars.

As a result, both the FICO and VantageScore credit scoring models expect borrowers to shop around to keep financing costs as low as possible. They give you a short window during which multiple applications count as one credit application.

That means submitting multiple car loan applications will always hurt your credit score a bit, but you can limit the effect to that of a single credit inquiry by keeping them close together.

How Rate Shopping Impacts Your Credit Score

There are two rate shopping rules that you can use to minimize the damage making multiple car loan applications has on your credit score.

The first rule, as covered above, is that all applications within a short enough window count as one hard inquiry. FICO claims that a single inquiry usually won’t cost you more than five points off of your credit rating.

In addition, they stop affecting your credit after only a year. After two years, they age off your credit report entirely.

The second rule is that your score usually won’t include inquiries made within 30 days before an auto lender checks your credit. FICO has confirmed that their scores ignore all applications submitted in the past month.

Fortunately, multiple credit inquiries usually won’t make or break your credit anyway. They’re part of the New Credit factor, which only accounts for 10% of your FICO score in total. For context, your payment history is worth 35%.

How Much Time Do I Have to Rate Shop?

The length of time you have to rate shop depends on which credit scoring model your lenders use. You usually have either 14 days or 45 days under the most popular models.

For example, FICO Scores 8 and 9 give you 45 days to rate shop, while their older models and VantageScore 3.0, give you 14 days.

If you’re unsure which scoring model your prospective auto loan providers prefer, keep your applications within a 14-day window to be safe. Every credit scoring system allows at least that much time.

Remember, these rules only apply if you’re shopping for an auto loan, mortgage, or student loan. Every time you apply for a credit card, you’ll add a hard inquiry to your report.

There’s no rate shopping for revolving accounts because lenders don’t expect you to compare interest rates the same way. You shouldn’t be using your credit card to finance purchases you can’t pay off by the end of the grace period.

Should I Still Rate Shop?

The FICO and VantageScore models let you rate shop for a reason. You’ll inevitably receive different interest rate offers from every lender you apply to, and even seemingly slight variations between loan options can be significant.

For example, say you apply for a car loan at two lenders. One primarily focuses on FICO Score 8 to assess creditworthiness, while the other uses VantageScore 3.0.

The first lender offers you a 4.75% interest rate based on your 698 FICO Score 8. Meanwhile, the second lender offers you a 4.15% interest rate based on your 707 VantageScore 3.0.

Say you want a $36,000 auto loan with a 60-month loan term. You’d save $589 in interest over the life of your loan with the second lender.

As you can see, you can save quite a bit of money by rate shopping. And if you do it correctly, you can avoid hurting your credit while doing so. Here are some things you can do to protect your score.

Check Your Credit Before You Apply for a Loan

Before you apply for any credit account, you should check your credit score yourself. It’ll help you figure out your approval odds at various lenders and give you an idea of the kind of loan terms you can expect to receive with your credit history.

Fortunately, checking your own credit counts as a soft credit inquiry. That means it won’t hurt your score, so you can do it as many times as you want.

If you have an existing account with a bank, credit card company, or credit union, they might give you a copy of it for free. If not, you can use a site like Mint, Credit Karma, and Experian.

Check which credit scoring model and credit bureau they use since there will be slight variations between your scores and reports at each one.

While you’re at it, it’s a good idea to pull your credit reports, too. Double-check that all the information in them is correct, and dispute any errors you see before applying for an auto loan.

Research Lenders Before You Apply for a Loan

FICO and VantageScore treat applications to multiple car loans as a single inquiry when you’re rate shopping, but you don’t want to send out dozens at a time without discrimination.

Not only does that waste your time, but it increases the chances that you’ll accidentally submit one outside of the rate shopping window and get stuck with an unnecessary hard credit inquiry on your report.

Before you apply for your first loan and start your rate shopping window, do some research. Get an idea of what kind of terms various lenders offer, including their:

• Principal amounts
• Annual percentage rates
• Fees and closing costs
• Credit score requirements

Take advantage of any pre-qualification tools that you come across. They won’t be exact, but they’ll give you a pretty good idea of the terms you can expect from the financial institution in question, and they count as a soft credit check.

Apply for Only One Loan Type at a Time

The rate shopping inquiry allowance only works on applications during the same window if they’re all for the same loan type. If you apply for multiple types of credit accounts, they’ll count as separate inquiries, even if they’re within a 14-day window.

For example, submitting four car loan applications in a week counts as one inquiry. However, if you also apply for a mortgage that week, it will add a second one to your credit report.

Because of this, you should focus on shopping for one type of loan at a time. Even if this weren’t the case and multiple loan applications for different account types counted as one inquiry, it’d still be a bad idea.

Acquiring too many new credit accounts at once can be overwhelming. Always try to increase your debt load incrementally to make sure you can keep up with your payments.

Make Sure To Limit the Applications to a Short Period of Time

Once you’ve done enough research to narrow down your loan prospects to a handful, try to knock them all out as quickly as possible.

You’ll likely have 45 days with some of your prospective lenders, but it’s probably best to stick to a 14-day application window. You’re better off being cautious with these things, and you won’t always know for sure what scoring method all your lenders use.

Prepare Your Credit for Car Loan Applications

Car loan principal balances aren’t as high as mortgages, but they’re still significant. They also have potentially much higher interest rates for people with bad credit scores.

Because of this, you should make sure you have as close to an excellent credit as possible before applying for an auto loan. One of the best ways to increase your score is with a Credit Strong credit builder loan.

CreditStrong helps improve your credit and can positively impact the factors that determine 90% of your FICO score.

Start Building credit today