Purchasing a car can impact your credit score in different ways, both positively and negatively. While auto financing won’t instantly boost your score, responsible management, on-time payments and good history can improve credit.

How buying a car affects your credit score

Short-term effects

When you finance a car, you may experience a slight drop in your credit score. This dip is primarily due to a hard inquiry on your credit report when lenders check your credit during the application process.

While a single inquiry may lower your score by a few points, applying for multiple financing options within a short period — typically 14 days — will count as a single inquiry under most credit scoring models, reducing the overall impact. Taking on new financing also increases your total debt, which can temporarily lower your score.

Long-term benefits

Over time, auto financing can positively impact your credit score if managed responsibly. Your payment history, which accounts for 35% of your score, will improve as you make on-time payments.

Since credit mix contributes 10% to your score, financing a car while having credit cards can strengthen your credit profile. Furthermore, financing for several years helps extend the average age of the accounts in your credit history, which makes up 15% of your score.

Factors that influence credit score changes

The effect of auto financing on your credit score depends on several factors. The impact may be minimal if you already have a strong credit history. If you have a limited credit file, financing a vehicle can help establish a favorable credit record. However, a large borrowed amount may increase your debt-to-income ratio and affect your creditworthiness.

Most importantly, timely payments can steadily boost your score, while missing payments can set you back. Financing a car while carrying high credit card balances may raise your credit utilization, which can lower your score. Managing auto financing responsibly and maintaining a balanced credit profile will help ensure long-term credit health.

How to protect your credit score

If you’re planning to finance a car, there are steps you can take to lessen the negative and maximize the benefits:

Before applying

1. Check your credit report – Review your report for errors and dispute any inaccuracies to ensure your score is as high as possible before applying
2. Improve your credit score – To increase creditworthiness, pay your bills on time, reduce credit card debt, and keep old accounts open
3. Get preapproved – Many lenders offer preapproval, which usually involves a soft inquiry that won’t affect your score
4. Use the rate-shopping window – Seek preapproval from multiple lenders within a 14-day period so that credit bureaus count them as a single inquiry

During the application process

1. Limit credit applications – Avoid applying for other forms of credit around the same time to prevent multiple hard inquiries
2. Make a larger down payment – Reducing the amount you finance lowers your debt-to-income ratio, improving your financial profile
3. Consider a cosigner – If your credit is less than ideal, a cosigner with good credit can help you get approved

After securing financing

1. Set up automatic payments – Ensuring on-time payments is crucial for maintaining a good credit score
2. Keep credit utilization low – Maintain low balances on your credit cards to offset the new debt from your auto financing
3. Avoid applying for new credit lines – Opening multiple accounts can temporarily lower your score
4. Monitor your credit – Regularly check your credit score to track the impact of your auto financing and address any issues promptly

How long does it take for your credit to recover?

Most people see their credit score recover within three to six months if they make consistent on-time payments, though full recovery can take one to two years, depending on other credit factors.

What to expect:

• Immediate impact (first 30 days) – Your score may drop up to 30 points due to the hard inquiry and new account

• Initial rebound (two to three months) – Your score begins to recover as hard inquiries lose impact

• Sustained growth (6-12 months) – On-time payments improve your payment history

• Long-term benefit (one or more years) – Positive payment history and credit mix help strengthen your credit score

Should you finance a car to improve your credit?

While auto financing can contribute to building credit over time, you should never take on debt solely to improve your credit score. The most crucial factor is whether you can comfortably afford the monthly payments and overall cost of ownership.

If you’re in the market for a car and need financing options, dealers in the Credit Acceptance network can help buyers secure financing, regardless of their credit history. Start the pre-qualification process for auto financing today!