My wife and I are trying to purchase a home, and in looking at the content of our credit report I realized that when we purchased our vehicle in March of 2016 the dealership’s financier ran our credit through:
1) GM Financial 2) Capital One 3) Santander 4) Ally Financial 5) Chase Auto as well as a 6th hard inquiry from the dealership itself.
These were not separate inquiries like we went from dealership to dealership. We never had our credit even ran until we had decided on the vehicle so this was all one 1 single dealership.
Ultimately we went with Chase, but that means there are 5 hard inquiries we didn’t go with, depending on which credit reporting agency of course.
Now I have read that credit inquiries stay on your record for 2 years, but have also read they only impact your score for 1 year, but I don’t not know if this is gospel or not.
So my question are
- Is this behavior (multiple hard inquiries from 1 dealership) or did the finance guy do something wrong (shady?)?
- Could I dispute the inquiries to get them removed? and perhaps most importantly…
- Is it worth it? Since they are already 15 months old, would they still have any impact on my score.
Our Equifax shows 4 inquiries with 2 being from this dealership (both with banks we didn’t end up using). Our TU shows 7 inquiries with 4 being from the dealers you could do that also hip (3 were banks we didn’t use). Experian shows 7 inquiries with 5 being from this dealership (5 being from banks we didn’t use).
Can you help us?
Yours is not an unusual situation. When you go to a car dealer they will take your application and then run it through multiple lending institutions, unless you tell them not to. This will not hurt your credit score in the way you completed this transaction, as it was done within a very short period of time.
Where people get into trouble is over Christmas and with credit cards.
My theoretical example is this:
You go shopping at Christmas at a variety of department stores or other vendors. They might ask you to apply for a credit card and get a 10 to 20% reduction in your price of the goods you are purchasing.
So let’s say you do that 10 times. It does not matter if it is within a short period of time because the credit bureaus and FICO scoring see that as multiple attempts to get a credit card. (You could possibly receive approval on all of the credit cards)!
As a result, this method will reduce your score by 3 to 5 points each time you apply for that credit card. The easy math tells me if you do that 10 times, and a five point reduction each time, it would equal a drop in your score of 50 points for each bureau (provided they checked each bureau).
Why do department stores offer a reduction in your total price if you apply for a credit card? If you are approved, you’re more likely to shop at that store and the store, backed financially by a bank or credit card company, receives income from the interest.
So when will shopping for a vehicle at a dealer hurt you?
Interestingly enough, it is when you apply for a business credit card.
If you are in entrepreneur and have started or are starting a new business venture, one of the easiest ways to receive working capital is applying for business credit cards.
Where do they check your credit?
Why, of course, it’s your personal credit and if you have more than three hard inquiries on your report with any of the bureaus, you could be rejected. And they don’t care what your credit score is.
Let me give you a real-life example.
A friend of mine wanted to start a very small business and had all three credit scores above 760.
Two months prior to coming to me to discuss his situation, he found a vehicle through a local dealership here in Minneapolis. He found this vehicle through the Internet.
The mistake he made, and that the mistake anybody would make, is that he applied for the loan through the dealership.
Thinking they would pull his credit one time and find out he had a very high score.
Unless you tell them otherwise, a used or new car dealership will always shop your loan around to other lending institutions that they have a relationship with.
Most people do not realize that car dealerships make the majority of their money on the financing, not the sale of the vehicle.
Their preference is not to work with people with cash. Don’t get me wrong, they will sell you a car but they make very little on you.
It’s the after sale market they will tempt you with, like rust proofing or warranties.
The other big part of the money they make on the sale of a vehicle is the financing. That is the reason why they shop it around to different lending institutions.
And they do not disclose to you their portion of the interest they make. (And it is even worse for people with bad credit).
Back to my real life example:
This gentleman who had all three scores above 760 and very little cash on hand could not get the loan because the dealership had shopped his credit report for the loan and each creditor pulled their own credit report. Because their rules state that no more than two hard inquiries on the credit report is allowed, he was rejected. Is this true for all business loans? No, it is not. However, most, if not all, of the other lenders financing entrepreneurs require money for down payment or having been in business for a few years with an average monthly gross income of $7000 or more.
Caveat Emptor: if you are in business for yourself as an entrepreneur and you need a vehicle, get the financing yourself, preferably from a credit union.
To answer your questions directly:
- Did the finance guy do something wrong (shady)? Shady implies that they know what they are doing to an entrepreneur, and I do not find that to be the case. It’s up to us to know what the rules are.
- Can you dispute these inquiries? Absolutely! I have done it many times and have had them removed. Dispute the inquiry with the credit bureau and tell them you did not authorize this.
- Is it worth it? It depends on if you are an entrepreneur or not. If you are not, do not worry. If you are, yes it is if you are going for financing for your business venture.
I hope this helps.
John A Mackey