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  • Writer's pictureReal Andrews

How Buying a Car Can Affect Your Credit

Updated: May 12, 2023

A car can be a significant purchase, and it can have a significant impact on your credit score. When searching for the best financing rates for your car purchase, some lenders may conduct a hard pull on your credit. Although these pulls can affect your score, a single hard inquiry typically only results in a minor decrease in your credit score. If you have multiple hard pulls from different auto lenders, they will be combined into one if they happen within a certain timeframe, which is typically up to 45 days for inquiries related to installment loans such as auto loans and mortgages, according to FICO, the company that calculates the most widely used credit scores. Here are some ways that buying a car can affect your credit:

  • Credit Inquiry: The lender will evaluate your ability to repay loans when you apply for an auto loan by looking at your credit score. This is a "hard inquiry," which can temporarily lower your credit score.

  • Payment History: One of the most important factors in evaluating your credit score is your payment history, which you may build by making on-time auto loan payments each month.

  • Credit Utilization:Your credit usage rate will take your auto loan into account since it is a type of credit. This rate indicates how much of your available credit you are utilizing, and a lower rate is generally better for your credit score.

  • Credit Mix: Your credit score may be impacted positively if you have a variety of credit accounts, including a mortgage, credit cards, and an auto loan.

  • Debt-to-Income Ratio: Your debt load will increase if you get a car loan, which may have an impact on your debt-to-income ratio. It can be more difficult to get other types of credit in the future if your debt to income ratio rises too much.

Overall, buying a car can have both positive and negative effects on your credit score. It’s important to make timely payments, keep your credit utilization low, and maintain a good mix of credit accounts to minimize any negative impacts on your credit.

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