{"id":1422,"date":"2022-11-14T15:42:25","date_gmt":"2022-11-14T15:42:25","guid":{"rendered":"https:\/\/www.sprucemoney.com\/resource-center\/?p=1422"},"modified":"2025-03-29T03:16:54","modified_gmt":"2025-03-29T03:16:54","slug":"does-buying-a-car-hurt-your-credit","status":"publish","type":"post","link":"https:\/\/www.sprucemoney.com\/resource-center\/spending\/does-buying-a-car-hurt-your-credit\/","title":{"rendered":"How much will a car loan drop my credit score?"},"content":{"rendered":"\n

Buying a car is a big financial milestone for many \u2014 it means freedom from having to ask for a lift or being at the mercy of public transportation schedules. And choosing to purchase rather than lease a car can have many potential benefits, like a lower interest rate and better warranty.  Yet, many people worry about how it impacts credit and chew over the question, \u201cHow much does buying a car affect my credit score?\u201d<\/p>\n\n\n\n

If you\u2019re starting to stress out just thinking of making a big purchase like a car, we get it. But this is where a little education can go a long way in calming your nerves.<\/p>\n\n\n\n

We\u2019ll outline the specifics of the question, \u201cHow much will a car loan drop my credit score?\u201d Then, we\u2019ll share more credit-related resources, like what credit is and the factors that impact your credit score and other financial considerations you should take into account when buying a car.<\/p>\n\n\n\n

Does buying a car hurt your credit score?<\/h2>\n\n\n
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\"does<\/figure>\n<\/div>\n\n\n

Generally, a lender pulls (or gathers) your credit report and score when you apply for credit, which results in a hard inquiry on your credit report.<\/p>\n\n\n\n

Inquiries are classified as \u201csoft\u201d or \u201chard\u201d \u2014 the former doesn\u2019t impact your credit score, while the latter does. A hard inquiry to your credit report can reduce your score by two to 10 points. This drop can be significant if you have a lower score to begin with. The impacts are less noticeable if you have a high score before the credit inquiry.<\/p>\n\n\n\n

Luckily, you can improve your credit score over time \u2014 it\u2019s not a fixed number. So, if your credit score isn\u2019t where you want it to be, there are various ways to improve it.<\/p>\n\n\n\n

Need a little background on credit topics? Review our posts that outline what a good credit score is<\/a> or learn how to start building credit. <\/a> <\/p>\n\n\n\n

And, remember, with the Spruce mobile banking app, you can monitor your credit score<\/a> for free!<\/p>\n\n\n\n

How does buying a car affect your credit? Other considerations\u2026<\/h3>\n\n\n\n

When first getting an auto loan you may initially see a negative impact to your credit score because of the hard credit inquiry and new debt. The new loan may also impact a specific factor related to your credit score called length of credit history. This factor accounts for 15% of your FICO\u00ae Score .<\/p>\n\n\n\n

To better understand this concept, let\u2019s look at an example. If you had a credit card account that you opened 10 years ago and a second credit card that you opened six years ago, the average age of your credit accounts would be eight years. By getting a car loan, you\u2019ll have a new account that will reduce the average age of your credit history.<\/p>\n\n\n\n

Why does the length of credit history matter? Credit history shows your ability to pay back your debts. The longer your credit payment history, the more experience you have with credit \u2013 so it\u2019s proof to lenders that you\u2019ve got a favorable track record. <\/p>\n\n\n\n

If you\u2019re financing through a car dealership<\/strong>, they typically pass along your information to multiple financial institutions. Each lender in turn may pull your credit report to check your eligibility for the car loan.<\/p>\n\n\n\n

You might also shop around on your own<\/strong> for auto loan options<\/strong> with different financial institutions, like a credit union or bank, to get the most favorable interest rate in the market. In doing so, the financial institutions may also make a hard inquiry into your credit report.<\/p>\n\n\n\n

Multiple credit pulls in a short time frame can hurt your credit score. However, since all auto loan inquiries are for the same reason, if they occur within a short period (try to stay within 14 days), there should be less impact to your credit score because they will likely get counted as a single inquiry.<\/p>\n\n\n\n

Here\u2019s the best news:<\/strong> A car loan can positively affect your credit! If you make your car payments on time, an auto loan could improve your credit score over time. Payment history is the biggest factor used to determine FICO\u00ae Scores and accounts for 35% of your credit score. A car loan could also improve your credit mix \u2014 having different types of credit accounts is another factor used when your credit score is calculated. <\/p>\n\n\n\n

Buying a car is a big purchase, so kudos to you for researching the impacts on your personal finances! Before buying, you should also consider the car’s make, model, and age and think carefully about what down payment and subsequent monthly payment you can afford relative to your income.<\/p>\n\n\n\n

Watching your credit? Saving for a car? Here\u2019s how Spruce can help<\/h2>\n\n\n\n

For a handy app that can help you save money and more, check out Spruce’s saving goals<\/a> to help set aside money for savings with ease. You can also lean on Spruce’s credit tool<\/a>