Your credit score is the single most important metric for many credit lenders when deciding whether to grant you a loan.
To assess whether you are a good candidate for a line of credit, many lenders will perform a credit check to assess your complete credit history. However, even the act of checking your credit score can negatively impact your credit file.
Hardly seems fair right?
If you’re in the market for a bad credit car loan or don’t have a built up credit score, you’ll want to know everything there is to know about how credit checks impact your score.
Let’s have a look at the ways a credit check can affect your file.
What is a Credit Score?
Firstly, lets define what a credit score actually is.
A credit score is a number generated from the aggregate analysis of a range of different factors usually supplied by a credit bureau. In Canada, the main credit bureaus are TransUnion and Equifax.
Your score will typically range from 300 to 900, with the higher the number the better. Exactly how credit bureaus calculate your score is a closely guarded secret, but between the different credit bureaus your score shouldn’t fluctuate too much.
Things that will appear on your credit score include any open or closed lines of credit you may or might have had, such as personal loans and credit cards. Mortgages, missed payments and declarations of bankruptcy will all be shown prominently on your credit file as well.
Something else that will show up on your credit score is whenever a potential lender requests access to your credit file.
This might seem like an odd thing to include, but many credit providers will take credit check requests on a file as a risk for poor credit management and a potential risk for defaulting.
If a lender sees that you have made credit inquiries with many different institutions over a short period of time, they will be less likely to approve you and your credit score will take a hit.
There are actually two different kinds of credit checks that can be performed that have different impacts on your score. It is important to ask your potential broker what kind of check they employ when looking for a bad credit car loan.
Hard vs Soft Checks
Credit checks are seen as being either ‘hard’ or ‘soft’ checks. Which one is used will depend on the organisation checking and the situation in which the check is being performed.
A hard check is performed by any potential credit provider when you request a line of credit.
Hard checks can knock up to 5 points off your credit score, which is a relatively minor impact but can add up over time. Credit checks make up 10% of your overall credit score, so still something to be aware of.
These kinds of checks are used in situations like when you apply for a credit card, personal loan, mortgage, student loan or car loan.
Interestingly, in the cases of mortgages, student loans and car loans, many credit bureaus will treat inquiries made within 45 days as part of the same inquiry.
This is due to the accepted practice of ‘rate shopping’ for large purchases like homes and cars, and is actually a positive sign for many lenders as it shows you are shopping smart and assessing all of your financial options.
This is especially important when looking at getting a bad credit car loan, as you won’t be punished for shopping around to get the best rate.
Hard checks also appear on your file for 2 years, after which they will disappear and no longer show up on your file or detract from your score.
This is good to keep in mind when looking for new credit products, as making many inquiries throughout the year can leave a mark on your record for at least 2 years.
A soft check happens whenever you check your own credit, your financial institution checks for a preapproved offer, or your potential employer checks as part of their hiring process.
Soft checks have no impact on your credit score and will not show up as an entry either. These kinds of checks are often performed without your explicit consent, which means they cannot negatively impact your score as a rule.
It is a good idea to perform your own soft checks often so that you are aware of your credit standing and to keep an eye out for any potential fraudulent entries. Even if you are looking for a bad credit car loan, being familiar with your overall credit file is invaluable.
Pay close attention to any hard checks that you do not recognize, and follow up with your credit bureau or financial institution immediately should you notice any that look out of place.
How Do I Get A Bad Credit Car Loan?
So now that we know the difference between hard and soft checks and the impact they have on credit scores, how do we apply that to getting a bad credit car loan?
For starters, you’ll need to contact a car loan broker, preferably one that specializes in no credit or bad credit card loans.
Autoloans.ca is a full-service bad credit car loan broker with a focus on getting those in need into the car of their dreams.
A quick and easy online application is usually approved in minutes, at our dedicated team doesn’t take ‘No’ for an answer when looking for the absolute best rate available for our customers.
Once we have found you the best possible rate on a car you love, we’ll even deliver it straight to your door!
Getting a car loan is a fantastic way to build up credit if you have just moved here, or to repair bad credit through regular on time repayments.
If you’re looking for more information, contact us today.