Does Buying a Car Help Your Credit Positively or Negatively?

Does Buying a Car Help Your Credit Positively or Negatively? article image.

It's really up to you. Buying a car can help you build a positive credit history if you pay the debt on time and as agreed. Failing to pay on time will hurt your credit. But the first item people often worry about is an inquiry.

When you apply for a car loan, your application will probably be sent to multiple lenders. A new inquiry will be added each time a lender reviews your credit report. An inquiry is simply a record that someone has looked at your credit report.

You will see all of the inquiries for your auto loan application in your credit report. However, credit scoring systems recognize that you are only buying one car, so in most cases, those inquiries will be counted as only one inquiry. In fact, some of the newest credit scoring systems don't count the inquiries for auto loans at all.

Once you purchase the vehicle and get a new loan, new debt will be added to your credit report. You may see an initial drop in scores because there is uncertainty as to whether you will be able to manage this new debt and because there is no payment history associated with the loan yet.

As you begin to make payments on time and show that you are responsible with the debt, your scores will increase. The most important factor in credit scores is paying your debts on time. If you do that with your new car loan, it should be positive for your credit scores over time.

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Scoped on: 10/25/2016

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