Can An Auto Loan Hurt My Credit?

Milad Hassibi August 8, 2018


There are many factors that will decide if an auto loan will hurt or help your credit. If you budget accordingly and make your payments on time, an auto loan can raise your credit score significantly. However, if you start to fall behind on payments, you will experience some damage to your credit score.

Credit Score and Report

When it comes to credit, there are two separate animals: your credit score and your credit report.A man sits in front of his car in a yellow shirt Your credit report is a record of all your past and current credit accounts, whether good or bad.

Your credit score is a number that results from your credit report entries.

If you’re looking to get an auto loan, a lender will ask to see a copy of your credit report and score.

Your credit report is a “history log” of all your past and current credit activity. It also shows your personal information such as your past and current addresses, aliases, etc.

If you are actively looking for an auto loan, you may receive a small ding on your credit score, as a hard inquiry is being performed on your credit. Hard inquiries can lower your credit score, but if you have all the hard inquiries performed in a 2 week period, they will all count as just 1 inquiry.

This is because the credit bureaus recognize that consumers will “shop around” for an auto loan that fits their needs.

Building or Hurting Credit

If you are approved for an auto loan, you have the chance to raise and lower your score, depending on the action you take. If you are a responsible borrower and make your payments on time and in full, you should see an increase in your credit score. Each month a payment is received, your lender will report the positive payment history the credit bureau(s).

Get a Car Loan with Any Credit Along with a Happy Couple and a New Black SUV next to them

An auto loan can also hurt your credit as much as it can help if you miss payments frequently and fall behind significantly, your lender will report your poor payment history to the credit bureau(s). If you fall far behind enough to the point where the lender repossesses your car, you could face a score drop of 100 points or more.

Final Note

If you are looking to buy a new car but are in need of financing, CrediReady can help. Our nationwide network of trusted dealers and verified lenders work with buyers in all credit situations. Take a moment to fill out our free no-obligation loan inquiry form and start shopping for your dream car today!



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