Everyone has heard about the credit crunch. Now a credit score means more than it ever has before. That is because lenders are not being as generous with their money as they once were. Because of that, consumers must be mindful whenever they take part in any activity that can hurt their credit score. That includes shopping for an auto loan.

Many people do something that hurts their credit score. They might want a new car, but they are not ready to buy yet. However, they start shopping around for a loan. They say that as soon as they find a loan they want, they might start looking for a car. Therefore, they fill out the occasional loan application. They do not accept any of the loan agreements. Instead, they are simply looking at the rate they are approved for.

Six months can pass, and the loan terms actually start getting worse instead of better. Why is that? The inquiries have affected the credit score. Now, they are seen as more of a risk than they were the first time they looked for a loan. If they would have taken a loan six months ago, they would have gotten better terms. Now, though, if they choose to get a new car, they are going to have to pay a higher interest rate.

How can this be avoided? You certainly do not want to be stuck with the first loan you apply for, as that might not be a very good one. Luckily, the FICO model does take loan comparison into consideration, as long as you do it in a certain way.

Basically, shopping around for a car loan will not hurt your credit score as long as you do all of the shopping within thirty days. If you do it all within thirty days, the score will reflect that you shopped for one car. However, if you span it out longer than that, your score will go down.

Therefore, do not start comparing loans until you are ready to buy. If you want to buy a car within the next thirty days or less, you can start comparing loans. As long as you keep all credit inquiries within that thirty day period you will be fine. Anything outside of that will become a problem.

If you do not think you are going to buy a car within the next thirty days, hold off until you are ready. There is no need to shop for a loan until you are ready to buy. Give yourself a chance to get ready and then start shopping.

With the current credit crisis, you do not want to do anything that will hurt your credit score. Be sure to use the thirty day method when you shop for a car loan so your score is not damaged. A credit score is very important and once it drops, it is hard to get it back up. Therefore, shop wisely so you do not damage your score.

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Daniel Legal is on the marketing team that run the website LemonFree.com Used Cars. When he's not promoting the website in various automotive forums you can find him in his garage working on his VW Golf. Read the latest article about Car Loans in the LemonFree resources section.

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