Why Did My Credit Score Drop After Buying a Car?

Seeing your credit score drop after purchasing a car is a common, temporary adjustment as new financial activity reflects on your credit report. Understanding the factors that influence your score can help alleviate confusion. This initial dip is a normal part of acquiring new credit and is often short-lived, with your score potentially recovering and improving over time with responsible management.

The Impact of Credit Inquiries

When you apply for an auto loan, lenders perform a “hard inquiry” on your credit report to assess your creditworthiness. This allows them to review your detailed credit history. Each hard inquiry can cause a slight, temporary dip in your credit score, typically by a few points. This reduction reflects the perceived increased risk associated with seeking new credit.

Credit scoring models, like FICO and VantageScore, understand that consumers often shop for the best loan terms. To accommodate this “rate shopping,” multiple hard inquiries for the same type of loan within a specific timeframe are treated as a single inquiry. FICO Score versions allow up to 45 days, while other models often use a 14-day window. To minimize impact, complete all auto loan applications within a 14-day period. Hard inquiries remain on your credit report for up to 24 months, but FICO Scores only consider them for 12 months.

The Influence of a New Auto Loan Account

Beyond initial credit inquiries, opening a new auto loan account also affects your credit score. This influence stems from how the new loan integrates into your existing credit profile. The full impact typically appears on your credit report within 30 to 60 days after the loan is established.

A new auto loan account immediately lowers the average age of your credit accounts. Credit scoring models consider the length of your credit history, with older accounts indicating more stability. This factor accounts for about 15% of a FICO Score, so adding a new account can temporarily reduce this average, causing a minor downward adjustment. As you make consistent payments, this new account will age and contribute positively to your credit history.

Taking on a new auto loan increases your total outstanding debt. While an auto loan is an installment loan with fixed payments, unlike revolving credit card debt, the overall increase in the amount owed can still influence your score. The “amounts owed” category accounts for 30% of a FICO Score, so an increase in total debt can lead to a temporary score reduction. As you consistently make on-time payments and reduce the loan balance, this factor can improve, boosting your score.

Adding an installment loan like a car loan can diversify your credit mix, a positive long-term factor accounting for 10% of a FICO Score. However, immediately after opening, the account’s newness and increased debt are the primary drivers of any score drop. Consistent, on-time payments are the most impactful factor, making up 35% of a FICO Score, and will ultimately help your score recover and grow.