You want a new car or truck, but you're worried that buying one might affect your credit rating when you later go to buy or refinance your house. That's a valid concern because both vehicle financing companies and mortgage lenders rely heavily on credit ratings, produced by three independent agencies and consolidated by Fair Isaacs Corp. into a FICO score. A bad FICO score can prevent you from getting a mortgage or other loan or at least affect terms, such as interest rates. Check your credit score before making any major purchase; you can do it easily online, for free.
Prepare Your Score
You can prepare your credit score for adding a new vehicle by making sure all other loan payments are current and cutting down balances. Don't cancel loans -- a loan that's still on the books with a zero balance can actually help your credit score because it will show a good payment history and not affect the ratio of your debt to your income.
Shop for the best deal on a car or truck, but don't fill out a lot of credit applications, which will trigger credit inquiries. Rating agencies track the number of inquiries about credit and a lot of inquiries can affect your score. Several inquiries at one time won't have any effect, but too many inquiries throughout several weeks or months may raise a caution flag on your score.
Know the Score
Understand what's in a credit score. The largest single component is payment history, so if you have kept all your loans paid up, adding a new vehicle loan should not have much impact. The second large element, however, is total debt -- how much credit do you already have, from all sources, loans, mortgages, credit cards or other financing. If you don't have much debt, adding a vehicle should not affect your score much. If you already have a lot of debt, adding a vehicle loan will affect the rating.
Check Your Credit Type
Your credit score also is based on the type of credit you use, whether it's mostly installment loans for such things as a house or new furniture or mostly credit cards or finance accounts. This will include your record on vehicle loans -- how many have you had, have they all been paid in full and on time? If your record with previous vehicle loans is clean, a new car or truck loan should not seriously change your score.
- My FICO: What’s in Your FICO® Score
- My FICO: Credit Inquiries
- Bankrate.com: Does Car Loan Inquiry Hurt Credit Score?
- Experian: Impact on Credit Scores of Inquiries for an Auto Loan
- Car Loan Calculator: How Late Auto Loan Payments Affect Your Credit Score
- Better Business Bureau: Going Forward: How to Improve Your Credit Score
- Bankrate.com: How Credit Inquiries Affect Credit Score
Bob Haring has been a news writer and editor for more than 50 years, mostly with the Associated Press and then as executive editor of the Tulsa, Okla. "World." Since retiring he has written freelance stories and a weekly computer security column. Haring holds a Bachelor of Journalism from the University of Missouri.