Prequalifying for a car loan, also known as obtaining a preapproval, won't substantially affect your credit if you apply for only one loan preapproval. Each time a lender accesses your credit the inquiry remains listed on your report for several years. If you constantly apply for credit, the decrease in your credit score might become significant.
Point Reduction
Your credit score can decrease by up to five points each time a lender accesses your credit report or not all, depending on the length of time between inquiries. The My FICO website states that all inquiries made within two weeks for a credit report for the same type of loan, whether mortgage or auto, reduce your score the same as one inquiry, allowing a consumer to shop competitive rates. Wait until you're ready to pursue a loan and shop rates within the two-week time frame; otherwise, you risk lowering your credit score.
Hard Inquiries
If you're concerned that your credit score was affected by recent inquiries, such as an auto insurance quote or increased line of credit from an account you already have, don't be. These credit inquiries are known as "soft inquiries" and don't affect your credit score. "Hard inquiries," the term used to describe credit reviews that you initiate to obtain a line of credit, remain on your credit report for two years. Any point reductions also last as long.
Lender Considerations
Keep in mind that potential lenders over the next two years can view the lenders you authorized to view your credit. While the credit bureaus might offer some leniency to check rates over a short time period, the consistent inquiries might be unfavorable to other lenders. Future potential lenders won't know that you were only checking rates and can only see the name of lenders who you've allowed to pull your credit information, which may make it seem as though you constantly apply for credit.
Before You Obtain Your Preapproval
Check rates and lending terms before you decide where to apply for a preapproval to minimize the amount of inquiries that remain on your credit report. Most lenders list rates on their websites. If you apply to a dealership for a preapproval, take caution. Dealers often work with many auto loan providers and have the ability to submit credit applications electronically to multiple lenders at once. If you plan to use a dealership for financing, ask the person handling your credit application not to send your application to more than two auto loan providers.
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