I came across this question: “Can I sue a car dealer for excessive credit inquiries?” reviewing search terms on my blog and thought this is a good topic for further discussion.
First of all, what is a hard investigation?
There are two types of credit inquiries, hard and soft.
A hard inquiry is a credit inquiry made for the purpose of obtaining credit. These types of inquiries are usually done for things like a home, a car, or a personal loan. Credit inquiries from landlord-tenant screen services are also considered hard inquiries.
A soft inquiry is a credit inquiry requested for informational purposes. If you apply for your own credit through a site like AnnualCreditReport.com, this is considered a soft inquiry and does not deduct points from your score. In addition, creditors you currently do business with can perform a soft inquiry to conduct an account review and assess your current creditworthiness. “Pre-approved credit” offers are not counted as strong inquiries. Credit inquiries for insurance and employment also fall into this category, as they are not for the purpose of granting you credit.
How many points can be deducted for a credit inquiry?
o Each “hard” credit inquiry (meaning the consumer has applied for some type of credit, leading the creditor to check the credit report or score) that is counted typically does not subtract more than five points from a person’s score .
Auto Loan Inquiries
Auto loan and home loan inquiries have been treated a little differently since 2004. Due to the fact that most people like to shop around for both home and auto loans, the credit bureaus recognized the fact that each inquiry had a negative impact on credit scores because of the multiple sweaters. This practice harmed the consumer’s credit rating and prevented them from searching for the best rates and terms.
So Fair Isaac changed the rules a bit for auto and home loan credit inquiries:
o The credit scoring model recognizes that many consumers search for the best interest rates before purchasing a car or home and that their search may lead to multiple lenders requesting their credit report. To compensate for this, multiple auto or mortgage inquiries in any 14-day period are counted as one inquiry.
o In the newer formula used to calculate FICO scores, that 14-day period has been extended to any 45-day period. This means consumers can shop around for an auto loan for up to 45 days without their scores being affected. But the old 14-day rule might still apply to some lenders who don’t use the new version.
o The most recent version of FICO went online at all three credit bureaus (TransUnion, Equifax, and Experian) in 2004. It typically takes months for lenders to adjust their processes to accommodate the revised formulas, and some lenders never adjust.
o The FICO score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. If you find a loan within 30 days, inquiries won’t affect your score while you’re searching for interest rates.
How to avoid multiple hard automatic queries
If you want to avoid multiple hits to your credit while shopping for an auto loan, you’ll need to set aside a two-week window to fully focus on getting your financing.
oh Find out what your credit score is:
To shop for a loan without multiple credit inquiries, you’ll need to know what your credit scores are. This will also help you determine if you are “fundable” or if you will have any difficulty obtaining financing.
You can get an estimate of your FICO Score to get an idea of the current range of your scores, or you can purchase a 3-in-1 report with FICO in one easy-to-read report for just $39.95 so you can know exactly what your credit scores are. .
oh Get pre-approved at a bank:
Now that you know what your credit scores are, call the local banks in your area and ask, “What is the minimum credit score needed to get pre-approved for a car loan?”
If you know their credit scores meet their “approval guidelines,” ask what their interest rates and terms are, like how much down payment they’ll require.
Once you’ve determined the lender with the most favorable terms, go to that bank and apply. Some banks even have an 800 Telephone Loan Center or online application process available so you don’t have to go anywhere.
Once you’ve been pre-approved by the lender of your choice, you typically have 30 days before the pre-approval expires.
If you decide to go this route, you’ll not only get the best interest rate without generating multiple credit inquiries, but you’ll also find out how much you’re approved for, making buying a car easier in the long run. run.
oh Get car financing if it’s not “bankable”
If your credit scores are below what you consider “bankable,” you’ll need to find financing elsewhere. There are several ways to do this.
1. You can go through an online vehicle financing network. These networks have access to multiple lenders and their guidelines. They’ll have to pull your credit to find out what your scores are, but then they have access to many auto loan financing companies that specialize in consumers with “less than perfect credit.” Once they have determined which lender you have the best chance of being approved with, they will submit your application.
2. Go shopping for a car and when you find the car you want, the dealer will be happy to send your loan application to multiple lenders. Remember, if you decide to go this route, you have 14 days of unlimited credit withdrawal to count as 1 withdrawal.
If you continue to do this month after month, you will see about 5 points deducted from your score each time your credit is drawn.
The answer to the original question: “Can a car dealer be sued for inquiries that are too difficult?”
Civil liability for knowing breach: “Any person who obtains a consumer report from a consumer reporting agency under false pretenses or knowingly without a permissible purpose shall be liable to the consumer reporting agency for actual damages suffered by the consumer reporting agency. consumer reports or $1,000, whichever is greater.”
What this boils down to is… READ WHAT YOU SIGN! If you applied for financing with an auto dealer, you must have completed a loan application. Did the paperwork you signed say they would send your application to multiple lenders?
If you didn’t give them permission to withdraw your credit, then you may have a case to sue for $1,000, but in my opinion, it will be much more complicated than it’s worth. The easiest way to handle the situation to your advantage is to dispute inquiries with the credit bureaus that report them.
If the creditors who pulled your credit can’t prove “permissible purpose,” the credit reporting agencies will remove these inquiries. If creditors come back claiming they had a lawful purpose, you have every right to ask them for documentation to prove it. Again, if they can’t produce that documentation, the credit reporting agencies will have to remove the inquiry.
Once the inquiry or multiple inquiries are removed, you should see an increase in your credit scores. It’s a bit of work on your part, but much easier than trying to sue for $1000.00.