Buzz
Tiffany is curious about how long it takes for a credit score to recover from a 'soft inquiry.' This week on Money Monday, we’re diving into her question.
I applied for a car loan, and the dealer told me it was a soft inquiry, but they ended up doing six hard inquiries on my report. I never bought a car, and my score has dropped by 75 points. How long will it take for my score to improve? How can I figure out how many points were lost with each inquiry?
Each Monday, we’re addressing one of your important personal finance questions by consulting a panel of money experts for their insights. If you have a general question or financial concern, or just want to discuss anything related to personal finance, feel free to leave a comment or email me at [email protected].
These are the general thoughts of experts on an issue that affects everyone in unique ways—if you’re seeking personalized advice, it’s best to consult a financial planner.
Bouncing Back from a Drop in Your Credit Score
Tiffany, it’s completely understandable that you’re upset—the dealer’s actions are unethical and could cause lasting damage. While we often find ourselves at the mercy of credit bureaus for many financial decisions in the U.S., they rarely show any goodwill for following their rules, making it even harder to fix our scores after incidents like this.
However, there are some tried-and-true methods—or at least recommended practices—when it comes to rebuilding credit.
There are many different credit scores and calculation methods, but for your FICO score, multiple credit checks within the same shopping window for an auto loan count as just one inquiry. 'So even though there may have been six checks on the credit report in this case, FICO will treat them as a single inquiry for reporting purposes,' explains Nick Clements, GM of MagnifyMoney.
In most cases, a single inquiry won’t have a major impact—it might cause a small dip of about five points, but the effect is usually negligible. The one exception is if your credit history is 'very thin,' according to Clements.
"Credit scores become increasingly 'anxious' when there are multiple inquiries within a short timeframe, particularly if those inquiries aren't related to shopping," he explains. "For instance, if someone has inquiries for three personal loans, three credit cards, and an auto loan all within a few weeks, the impact could be significantly more pronounced."
According to Clements, your credit score should be back to normal within six months, assuming there are no other changes. "However, this is just a general rule of thumb," not a guarantee.
Rebuilding Your Score
If your score dropped this much in such a short span, something may be amiss. "If she’s checking the same score from the same bureau and it’s down 75 points, she should pull her credit report from that bureau and investigate," says Liz Weston, NerdWallet’s personal finance expert and CFP. "If the score really did drop by 75 points, something else likely caused it—like a late payment, maxing out a credit card, or an account going into collections."
To begin improving your score, or just to give it a boost, start by understanding the fundamentals of how the system works and what your score actually represents. You can access it for free here. Here’s a guide on how it’s calculated. If you retrieve your credit report and notice any negative marks that don’t belong, getting them removed could help raise your score.
Next, think about getting a credit builder loan or consider one of these alternatives:
Pay off overdue accounts:
Although collections won't be erased right after you pay them off, clearing the debt will make it look better than leaving it past due. Also, regularly check your score for errors or
negative marks that could be removed
.
Consider applying for a secured credit card:
As long as you settle the full balance every month, there’s no need to worry about interest charges,” advises Greg McBride, Bankrate’s chief financial analyst. “Just avoid cards with high application and annual fees.
Become an authorized user on a relative’s card:
Remember, both parties are responsible for making payments, and both credit scores will be impacted.
Lastly, be patient. While Clements suggests your score should bounce back in six months, it will take at least another six months before it starts to grow, provided you stick to best practices.
