How Inquiries affect your credit score…

For as long as I can remember consumers are advised that every time they apply for credit their credit score will go down 3 points. This has been advised by banks, bad credit car loan dealerships calgary , advisers, etc. I find that I have a lot of clients that ask me this question after coming from a dealership after applying for a car loan pre-approval . Let me break this down for you. Your credit score does not go down 3 points every time you apply for a car loan , or every time you                  apply for a loan , or every time you apply for a credit card , or apply for a mortgage . It is true that if you over apply for credit your score will decrease . As an example if you go to a                                car dealership in Calgary , or apply for Calgary car loan for bad credit or apply for an                   everyone approved car loan , then you go to another car dealership and apply for a loan, and do this 3 or 4 times, then decide to walk into a bank and apply for a loan, then go to a consumer store and apply for a consumer credit card, then go online and apply for a credit card, this would be a good example of credit seeking. Your credit score will recognize this as credit seeking and will be calculated as a negative. This will certainly drop your score. Your credit score will not go down 3 points for every inquiry but will certainly drop in score in groups. Your credit score will not drop 3 points every time for simply looking for a better rate. The way the newer credit score calculator works is by grouping same types of inquiries as one. This will be in a certain time frame of course. In my opinion, only apply for credit when needed. I would suggest not applying for credit just to get credit. I understand that a lot of people are simply looking for a car loan and are looking for the best rate, but this can be done by researching as well, prior to going into a car dealership. Each car dealership will have a list of lenders that they use, and each lender will pull your credit as well. Keep in mind that when you apply at a car dealership for a car loan they will send to lenders so each dealership might represent 3 or 4 inquiries. In my opinion it will be best to ask each location how many lenders they are using and sending too. I would suggest going to a dealership and inquiring about how many lenders they are sending your application too. I would also suggest asking them to only send to one at a time and keep you posted prior to each time they send to a different lender. This will allow you to keep track of your inquiries. The Credit score calculator will not punish you for shopping for a good rate, but it will punish you for shopping over and over again. The same thing applies to mortgage applications. I would suggest doing some research prior to applying for any credit. Research can easily be done online and will save you points in the long run. In my opinion, I would suggest 2-3 inquires a year at most. Again, only apply for credit when you need it. So, everything above was in reference to a hard inquiry. Their are also soft inquiries or “soft hits”. These soft inquiries do not affect your score, and come from self inquiries(when you check your own score), promotional inquiries(a credit card company looking to offer you a pre approval promotion), an existing lender looking at your credit for an update (your visa company getting your bureau update). Please keep in mind that when you call your existing credit card company or existing car loan company and ask for an increase in credit, this will count as a hard inquiry. Always ask them prior to them doing an inquiry, and make sure you know what kind of inquiry it will be.

Just my 2 Cents

-M

Mark

Mark

Financetoday.ca

www.financetoday.ca