How do Car Loans Affect Your Credit Score?

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Believe it or not, car loans will affect your credit score. However, the ways by which they affect your score will vary based on the lender as well as your personal financial situation. 

Depending on whether you stay on top of your debt or not, a car loan can either hurt or help your credit score. Generally speaking, if the car loan is moderate compared to your income and total debt, and you pay it on time, it can actually help your credit score. 

How does shopping for a car loan affect your credit score?

Shopping for a car loan will affect your credit score in a certain way. Each time a lender runs a credit check, it will be considered a hard inquiry towards your credit report. You will see a few points drop from your score as well. However, all the major credit bureaus count hard inquiries from auto lenders within a set time as one inquiry. 

The length of time for all inquiries to count as one hard inquiry ranges from 14 days to 45 days. If you apply for several auto loans within 14 days to compare offers, it will show up as a single hard inquiry. 

How does taking out a car loan affect your credit score?

How does a car loan affect your credit score? A car loan will affect your credit score the same way any other type of credit. 

The length of your credit history, payment history and new credit line can all affect your credit score. Adding a new type of credit to your credit mix can increase your score in the long term. Each element can affect your credit score for better or for worse. Here’s how:

Payment history

As long as you make all of your payments on time, taking out an auto loan affects credit scores by building credit history and payment history. On-time payments can boost your credit score immensely.  

This is the single most important factor in whether a car loan will boost or harm your credit score. In addition to hurting your credit score, paying a car loan more than 30 days late can cause a lender to repossess the car. 

Credit usage

Credit usage is the amount of available credit that you are currently using. For example, if you have four credit cards and they each have a $5,000 limit, your available credit is $20,000. While an auto loan doesn’t increase credit card usage, it can increase your total credit usage. 

Using the same example, if your auto loan is $10,000 in total, then your credit usage before charging anything with the credit cards is 33%. If you carry a high balance on several accounts, this can harm your credit score.

Length of credit history

Generally, the longer your total credit history, the more it will help your credit score. Try to keep your oldest credit account open when applying for an auto loan to avoid an additional drop in your credit score. 

New credit

When you open a new line of credit, it can improve your credit utilization ratio. Over time, as you pay off your auto loan, you can see a boost in your credit score with improved available credit.

Credit mix

A diverse credit mix demonstrates to lenders that you use credit responsibly in a variety of situations. Credit cards, mortgages, student loans and auto loans are some of the most common types of credit in people’s credit mixes. 

Credit can be either installment, revolving or open. Car loans and credit scores can actually work well in your favor. Auto loans are a type of installment credit, along with student loans and mortgages. 

Credit cards are a type of revolving credit. Other bills that must be paid in full each month but vary in amount, like your electricity bill, are considered open credit. Having installment, open and revolving forms of credit in the mix can improve your credit score, as long as you pay all bills on time. 

How much will a car loan drop my credit score?

Car loan impact on credit score varies by consumer and personal credit history. For most people, when you take a new car loan, your credit score may dip slightly. 

This is largely due to a hard inquiry on your credit report and should be temporary. Over time, a car loan may actually help your credit if you pay bills on time each month. 

Will a car loan help my credit?

Practicing smart credit habits will improve your score over time even with a car loan. The key is to pay on time, every month. With regular on-time loan payments, an auto loan can improve your credit score. 

The auto loan can contribute to your credit score by adding to your payment history, new credit and credit mix. As you pay off the loan, your credit utilization will continue to improve, along with your payment history, leading to a credit score boost. 

How car loans affect your credit score

Do car loans affect credit score? The short answer is yes. When you apply for a car loan, most people will see a dip in their credit score, at least temporarily. 

For most people, these few points shouldn’t have a long-term impact. What will have a long-term impact on your credit score is making regular, on-time payments for your car loan and all credit accounts. 

For car loan credit score impacts, on-time payments along with other factors like credit utilization, credit history and credit mix, a car loan can actually help build your credit score long-term. 

The key is simple: make on-time payments each month on the auto loan and avoid carrying debt on other credit accounts to boost your credit score over time. 


Does getting a car loan hurt your credit?

When you apply for a car loan or get a car loan, you may see a temporary drop of a few points in your credit score. However, with regular on-time payments, over time, a car loan can help your credit score.

Does buying a car hurt your credit?

In the long term, as long as you make regular on-time payments, buying a car should not hurt your credit. In the short term, the hard inquiry on your credit history can temporarily reduce your credit score.

Do car loans help your credit?

If you pay off the loan on time, a car loan can help build your credit score. However, how a car loan affects your credit will depend on your credit utilization rate, credit mix, payment history and credit history to date. Immediately after getting a car loan, you will probably see a dip in your credit score of a few points. 


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