A hard credit check is a type of inquiry that is made to a consumer’s credit report when they apply for a car loan, mortgage, credit card or other type of credit/loan. This type of inquiry can have an impact on the consumer’s credit score and can remain on their report for up to two years.

Conversely, a soft credit check is an inquiry that doesn’t affect the consumer’s credit score and doesn’t remain on their report. Soft inquiries are typically used by lenders to prequalify consumers for products or services or to verify identity.

What Does Prequalifying for an Auto Loan Mean?

Prequalifying for a loan means that a lender has reviewed your creditworthiness and determined that you may be eligible for a loan up to a certain amount. Prequalification is not a guarantee of loan approval, but it can give you an idea of how much you may be able to borrow and help you narrow down your auto search.

Once a dealership runs a soft credit check and you’re prequalified for a loan, the next step will be to find a car, decide on a down payment then work with the dealership to determine which borrowing option is right for you. This will more than likely require a hard credit check, but it’s only done if you’ve decided to move forward with purchasing a vehicle after being prequalified for financing it.

The higher your credit score, the easier it may be to get approved for loan with a low interest rate. If your credit is less-than-stellar or limited, you may benefit from finding a cosigner. Otherwise, your loan may have higher interest rates and fees.

What Are Some Factors That May Impact Your Credit Score and Ability to Qualify for a Loan?

• Payment history: Whether you made payments on time and in full on past loans is one of the most important factors that impacts your credit score and ability to qualify for a loan. Late payments can negatively affect your credit score and may make it more difficult to qualify for a loan or get a low interest rate.

• Credit utilization: This is the amount of credit you are using compared to your total available credit limit. It is important to keep your credit utilization ratio low, as high utilization can negatively impact your credit score and decrease your chances of qualifying for a loan with favorable rates.

• Credit history length: The longer you have had an established credit history, the better it will be for your credit score and ability to qualify for a loan. A longer history shows lenders that you have a history of responsibly managing debt and can be trusted with additional loans or lines of credit.

• Debt-to-income ratio: This ratio compares how much debt you have versus how much income you earn each month. Lenders use this ratio to determine if you are able to handle additional debt without becoming overextended financially. A higher debt-to-income ratio may make it more difficult to qualify for a loan or get approved at a favorable rate.

Why Do Hard Credit Checks Affect Your Credit Score?

Hard credit checks affect your credit score because they indicate that you are applying for new credit. This can be seen as a sign of financial instability, and it can cause your score to drop. A single hard credit check will have little impact on your score.

Credit agencies usually aggregate multiple inquiries in a two-day period as a single pull, meaning if multiple lenders are performing hard credit checks in quick succession (like over a weekend while you’re car shopping) to see if you qualify for a car loan, it shouldn’t have an exponentially negative effect on your score. However, it’s best to avoid spreading your loan shopping over weeks, as spread-out inquiries might be counted separately and have a greater impact.

At Direct Car Buying, we’ll never run a hard credit check without your consent. As you explore our inventory of pre-owned vehicles, you can rest assured we’ll only run soft inquiries to protect your credit score until you’ve found your perfect match.

Why Are Soft Credit Checks Beneficial During the Car Buying Process?

People shopping around for a new car frequently have many options to choose from and may want to explore and test drive different makes and models before finding their dream vehicle. They also want to have an idea as to how much their monthly payment would be if they decided to purchase a particular car, truck or SUV. Knowing exactly how much you can borrow can narrow your search and prevent you from being disappointed by learning the vehicle you had your heart set on is out of your price range.

To accommodate the buyers’ journey, many dealerships, including Direct Car Buying, offer their customers soft credit checks. These soft checks ensure the buyer’s credit score isn’t damaged by hard inquiries and they can research different vehicles and prices with confidence and ease knowing their credit score will not be affected by the search.

Find Your Next Used Car, Truck or SUV and Protect Your Credit with Direct Car Buying

Are you looking for a used car, truck or SUV in Washington D.C. or Baltimore? The team at Direct Car Buying will help you find the perfect vehicle today! Browse our selection of quality used vehicles and get preapproved in minutes.