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An Auto Loan Inquiry Dropped My Credit Score 80 Points! What Now?

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One of our readers went car shopping, and had an unpleasant surprise when the dealer made a credit inquiry. Here’s the story:

Recently my boyfriend and I went to look at vehicles for him. He saw one he was interested in but knew we weren’t ready to purchase yet. The auto dealership convinced him to let them run the numbers and that they could get him into that vehicle with less than he is paying now on his current one. They pulled his credit but his score dropped 80 points and is now considered “bad” instead of fair. Why does one inquiry cause your credit score to drop like the floor has fallen out?! He was in the process of trying to re-establish credit after his divorce and now we won’t be able to purchase a home in the time frame we had planned and must wait to get his credit score up to the bare minimum. We’re in the process of disputing the inquiry because he wasn’t ready to purchase yet and he didn’t qualify for the loan. Is there anything else we can do?

Unfortunately, if your boyfriend agreed to allow the dealership to pull his credit and run the numbers, disputing the credit inquiry won’t remove it from his credit report. Having said this, an auto loan inquiry shouldn’t have caused your boyfriend’s credit score to drop by 80 points. This sounds excessive and leads us to believe there was more to the drop than just the auto loan inquiry.

For one, inquiries for auto loans are ignored for the first 30 days. After 30 days pass, auto inquiries are grouped together in 45-day increments. This means you could have 100 different auto inquiries in a 45-day period, and your credit score would only count them as one inquiry. This custom logic only applies to auto, mortgage and student loan inquiries, and was specifically designed to allow consumers to rate shop for the best deal without being penalized for excessive inquiries. Keep in mind, too, that this does not apply to inquiries for credit cards or other types of loans (aside from the ones mentioned above).

Secondly, inquiries play a relatively small part in your credit scores, accounting for just 10% of your score. The more inquiries you have in a 12-month period, the more points you stand to lose, but in general, a single credit inquiry wouldn’t cause you to lose 80 points in one fell swoop. In fact, according to Barry Paperno, a former FICO score insider, “a typical inquiry can be expected to drop your score by about 5 points or less.”

What’s Really Behind the Drop?

While inquiries remain on your credit report for two years, they only count in your credit scores for the first 12 months. After which they’re completely ignored by the credit scoring models. Which leads us to the real issue — what’s really behind his low scores?

It’s likely that something other than the auto inquiry caused his score to drop. Credit scores are based on the information reported in your credit reports, so it’s likely that something other than the auto inquiry was updated in his credit report and contributed to the drop. To truly determine what caused his score to drop, you’d need to compare his credit reports prior to the inquiry and after. Keep in mind, too, you’d need to make sure you’re comparing like credit scores to like. Not all credit scores are the same and if you’re comparing two completely different credit score models, you won’t get an accurate picture of what caused the drop.

In the end, if your boyfriend is trying to build his credit, he needs to first determine what’s currently pulling his score down. This will vary from person to person and is unique to the individual’s credit history. To help get him started in the right direction, there are a few basic steps he’ll need to take:

1. Check your credit reports.

All three of them — to make sure the information is accurate and up-to-date. If there are any inaccuracies, file a dispute to have the errors corrected. Under federal law you’re entitled to one free credit report from each of the three credit reporting agencies once every 12 months.

2. Check your credit scores.

Make sure you do this after you’ve verified that the information in your credit reports is accurate. Remember, your credit scores are only as accurate as the information being reported in your credit report. (You can monitor your credit scores using a tool like Credit.com’s Credit Report Card, which gives you access to your credit scores and monthly updates to track your progress for free.)

3. Pay attention to your score factors.

Each credit score is returned with score factors or reason codes that tell you where you lost the most points in your credit score calculation. This information will help you pinpoint what’s pulling your scores down so that you know where to focus your rebuilding efforts for the best results.

One last word of advice: If you’re planning on purchasing a home together in the near future, it’s important to understand that mortgage lenders will be looking at both of your credit reports and scores. And unlike other types of loans where lenders may only rely on one of your three credit reports and scores, mortgage lenders will pull all three of your credit reports and three credit scores — for both applicants. That means six credit reports and six scores, and they’ll use your middle scores to determine your interest rate and terms. This means you’ll both want to take these steps in order to focus on your credit-building plan together so that you get the best deal possible on the mortgage for your new home.

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  • http://www.credit.com/ Credit.com Credit Experts

    Hobed — we agree, this was also pointed out in the article where it specifically says:

    “Having said this, an auto loan inquiry shouldn’t have caused your boyfriend’s credit score to drop by 80 points. This sounds excessive and leads us to believe there was more to the drop than just the auto loan inquiry.”

    And again here:

    “Which leads us to the real issue — what’s really behind his low scores?

    It’s likely that something other than the auto inquiry caused his score to drop. Credit scores are based on the information reported in your credit reports, so it’s likely that something other than the auto inquiry was updated in his credit report and contributed to the drop.”

  • http://www.Credit.com/ Gerri Detweiler

    Carol – I’d be interested in learning more about your situation. I will contact you by email.

  • Rahat

    Well Thank you Deanna Templeton for valuable information. I recently bought a new car from Nissan, Run my credit score from three borough, before purchage my car, My FICO was 694 now its shoing after a month 653, I think there is a loop hole some where.

  • CE- Mpls

    I’m going to side with this person’s story. I went to one dealership who ran me against 19 lenders(seriously!). My score dropped 50 points by the next score reporting cycle. It’s now been six months, plus a paid off cc, and my score has not rebounded.

  • http://www.Credit.com/ Gerri Detweiler

    How frustrating. What service are you using to monitor your credit score? It may be the credit score model used does not ignore multiple inquiries.

    • JD

      Gerri, I had the same thing that Clari mentioned above, “I did went to a dealer and got 20 inquiries now when i applied to a credit card I get denied for so many inquiries”. Is there anything that can be done about these types of things?

      • http://www.Credit.com/ Gerri Detweiler

        If you believe the inquiries were done without your authorization you could try disputing them as fraudulent.

    • clari

      Hey Gerri I have 2 acct with midland funding but theyre past SOL Im willing to buy a house on january 2016, dont know what to do with those two acct

      • http://www.Credit.com/ Gerri Detweiler

        When did you fall behind with the original creditors? Collection accounts may be reported 7 years plus 180 days from that date.

        • clari

          I dont remember but on transunion it says that it will fall off on july 2017 i dont know if i should pay it or just leave it

  • http://www.Credit.com/ Gerri Detweiler

    Marline – Sorry if it sounded like were implying the score can’t drop due to multiple inquiries. It can depend on which scoring model is being used.

    I’d love to talk with you further about your experience. I will email you.

    • Ricky D.

      Gerri, I have experienced the same as well. Feel free to email me for the details. Another thing to note. I monitor my scores from 5 different sources, and none of the models ever match what a lender pulls. Some lenders use their own rules and models to determine your credit worthiness.

      • http://www.Credit.com/ Gerri Detweiler

        Thanks – just emailed you Ricky D.

  • http://www.Credit.com/ Gerri Detweiler

    Wow. Hope you’ll respond to my email. Thanks!

    • Ricky D.

      I have not received your email yet.

      • http://www.Credit.com/ Gerri Detweiler

        Check spam please – sometimes goes because of the topic.

  • CD

    Just paid off a truck and score drop 57 points. Shows three negatives (medical bills) REMOVED from the credit 7 months ago and the truck acct closed with no late payments. So I LOSE credit?

    • http://www.credit.com/ Credit.com Credit Experts

      That seems like a lot. Are you sure there is no other explanation (closing a credit card, a higher balance, etc.?).

  • Vstrigle

    I purchased a new car the dealer ran me through 7 different banks to get me the best rate all inquiries are listed separately on my Trans Union report and I lost almost 60 points on my credit score. Is it possible to contact them and fix the inquiries to be only 1 inquiry? Thanks for any help!

    • http://www.credit.com/ Credit.com Credit Experts

      Credit scores are supposed to factor multiple inquiries in a short time as a single inquiry (after all, it’s reasonable to assume you were in the market for just one car loan or home loan). However, as the article above points out, you’re not the first to report a problem. Inquiries stay on your credit report for two years, but they generally do not hurt your score after six months.

  • eddie smith

    I monitor my credit every 2wks. Financed a vehicle end of last month checked my credit this week; it dropped 60 points. The only new things were the inquiry from the finance company and the added debt for the amount financed.

    • http://www.Credit.com/ Gerri Detweiler

      Yes, we are writing another article on this topic and expect for it to post within the week. Thanks for sharing your experience.

      • marie

        This just happened to me, bought new vehicle 1,9% financing, dealer pulled 5 reports 28 pts lost.

  • Jackie

    I just had the same situation with a used car dealerShip. I applied with them and they generated 9 hard credit inquiries and dropped my score 100 points in a matter or 3 days. Not only did they run my credit on the day I visited but they ran my credit again 2 days later.

    Can they do this? Can I dispute this many inquiries?

    • http://www.credit.com/ Credit.com Credit Experts

      By all means dispute it. Multiple inquiries for purposes of a car loan in a short period should be consolidated and reported as a single inquiry, but we hear many stories similar to yours. Here’s how to dispute it:
      A Step-By-Step Guide to Disputing Credit Report Mistakes

  • Maliek Ball

    Now that I have read a few of the other comments, I feel like a bit of heel for writing this. I have exceptional credit so I stay on top of everything that can affect my credit score.

    My scores right now are: Experian – 801, Transunion – 803, and Equifax – 813. All of the scores were even higher than this before my wife and I got a car loan recently. Experian and Transunion only dropped a few points to the numbers I previously mentioned but for some reason my Equifax score dropped from 832 to 813. Is such a drop normal and why would that happen with only one credit bureau but the others only dropped a few points each?

    One last question that is just a side-note: I see that my reports don’t have the company that I am currently working for for the past 4 years. Should I make sure they are aware of my current employer?

    • http://www.Credit.com/ Gerri Detweiler

      These are good questions so don’t be afraid to ask! The drop you are talking about isn’t major. It could easily result from the new loan. (And most likely one dropped more than the others because it was a different scoring model that weighted factors differently than the others.) I imagine it should bounce back soon, but either way it sounds like you are in great shape.

      Employment information on credit reports isn’t considered terribly reliable, and it doesn’t affect your credit scores. You can get it updated but it if you don’t it’s not a big deal.

  • Cindy

    Okay so paying or not paying old or new credit COLLECTIONS on your report .it is still up for grabs. Can companies buy them and start over again. It pretty much sounds like somebody died and made Credit ,bureau’s God ! Or IRS. No win !!!

    • http://www.Credit.com/ Gerri Detweiler

      Companies can buy them and try to collect but collection accounts may only be reported for seven years plus 180 days from the date of original delinquency. After that, they can not be reported–paid or unpaid. More here: The 7 Biggest Questions About Debt Collections & Your Credit

  • Kory

    My wife went car shopping this past week, im out of town so I text the salesperson with my authorization to run my credit 1 time only. The dealership ran my credit 12 times. I was very specific in my authorization that I only wanted it ran once! anything I can do?

  • Michael Palumbo

    worked selling cars for many years. knew a few finance managers who would send someone around the world to every lender we had contacts with. he said if they did not buy from him they would not buy from anyone. they were real jerks. people would get 10 inquiries at 5 points each

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