Does buying a car lower your credit score? (paying, rate, vehicle)

[debtmonger]

Originally Posted by dazzleman

That's the sort of thinking that has gotten people into so much trouble. It's never a good idea to take on debt and make purchases just to improve a credit score. It probably won't achieve the desired goal anyway. Financial solvency is more important than a high credit score. And you can get a high score from managing your finances well, and using debt judiciously to buy things you would have bought anyway.

I don't think it is ever a good idea to take on debt to buy a car. It is never a good idea to take on debt on anything that is going to go down in value. As for my credit score, I'm only concerned about my insurance company jacking up my rates, which is another story. I think the insurance companies are playing a very dangerous game, which will bring a huge class-action lawsuit against the industry. Worrying about a 45 point drop in your FICO... Surely, you can find something more important to worry about.

[asnetworksltd]

The specific deduction to your credit score depends on ALL the information in your credit file.

In general: You take a 4 point hit for each "hard" inquiry. If you shopped at multiple dealerships, or your credit was pulled by multiple financers, those hits are counted as one (as long as they took place within a 14 day period). You will also take a hit for having a new account. For the purposes of credit, "new" is considered anything less than a decade old; although the points are not given a deduction for more than 6 months to a year. Your new car loan also affects your total debt to income ratio; although there are qualifers on that statement also.

To sum up: There are too many "althoughs" and "for purposes of" to answer your question specifically. Any deduction you received would be based on ALL the data in your credit report, not just your new car loan.

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[Synergy1]

We have over 800 on our FICO score and in September we purchased a new vehicle. The dealer tried to pull a few credit reports and I stopped them in their tracks.

I believe that to pass a credit report new autos think very litle of your credit reports in general. Just be careful and tell them up front 1 credit report and that is after you decide on which auto you would like to purchase. Pulling more than one is silly.

We discovered what they were trying to do and we did go someplace else to purchase a vehicle. Hopefully no one will try to pull more than 1 report on anyone else like they tried on us.

[StoneOne]

Originally Posted by debtmonger

I don't think it is ever a good idea to take on debt to buy a car. It is never a good idea to take on debt on anything that is going to go down in value. As for my credit score, I'm only concerned about my insurance company jacking up my rates, which is another story. I think the insurance companies are playing a very dangerous game, which will bring a huge class-action lawsuit against the industry. Worrying about a 45 point drop in your FICO... Surely, you can find something more important to worry about.

While I agree with your general conclusion at the end, I would disagree with not taking on debt for a car or anything else that may decrease in value. Cars, houses and any other number of non-appreciating assets provide returns through the form of usefulness. I would agree, though, that one should never go into debt for things like vacations or consumer products.

[debtmonger]

Originally Posted by StoneOne

While I agree with your general conclusion at the end, I would disagree with not taking on debt for a car or anything else that may decrease in value. Cars, houses and any other number of non-appreciating assets provide returns through the form of usefulness. I would agree, though, that one should never go into debt for things like vacations or consumer products.

Is a 10K used car that you pay cash for any less useful than a 30K new car that you had to go into debt to purchase? This cycle of car debt is stopping too many families from being able to fully save and invest for the future. I wish every 30 year old could see into the future and spend one day at the age of 70. You would look at things much differently.

[dazzleman]

Originally Posted by debtmonger

I don't think it is ever a good idea to take on debt to buy a car. It is never a good idea to take on debt on anything that is going to go down in value. As for my credit score, I'm only concerned about my insurance company jacking up my rates, which is another story. I think the insurance companies are playing a very dangerous game, which will bring a huge class-action lawsuit against the industry. Worrying about a 45 point drop in your FICO... Surely, you can find something more important to worry about.

I agree in principle that debt on depreciating assets is not a great thing.

For some people though, there isn't a choice. A car has utility, and they need it to get to their job and make money. Better to take a car loan than sit home unemployed.

However, most people use financing and, to a greater extent leasing, to obtain a vehicle that is more expensive than what they should be spending. That's the problem with various financing schemes, in that they disguise the true cost of spending more money.

I've had 2 car loans in my life, both times for relatively economical cars. Sometimes, it's better to make a car payment than to drive the broken down car that you'd have to buy with available cash, and spend huge amounts on repairs. It's all a matter of calibrating advantages and disadvantages. I haven't had a car loan now for 12 years.

[StoneOne]

Originally Posted by debtmonger

Is a 10K used car that you pay cash for any less useful than a 30K new car that you had to go into debt to purchase? This cycle of car debt is stopping too many families from being able to fully save and invest for the future. I wish every 30 year old could see into the future and spend one day at the age of 70. You would look at things much differently.

I recently purchased a new car (Honda), financing $21k, which includes all taxes, registration, options and an extended warranty to 120k miles.

I would have had to finance even a $10k purchase, as I wouldn't have had enough cash to pay in full.

Since I plan on driving the car until it falls apart - or until I suddenly have loads of disposable cash - I reasoned that the higher payments on the car I got were justifiable by the greater enjoyment and utility it would give me over the $10k car.

I am only paying 2.9% interest.

[krissy2008]

yeah my credit score did the same thing. i just got a loan for a car in sept and my fico score dropped from 770 to 749 in october. me and my husband are supposed to get a loan for a house in the spring. i hope its still possible.

[oneasterisk]

Originally Posted by krissy2008

yeah my credit score did the same thing. i just got a loan for a car in sept and my fico score dropped from 770 to 749 in october. me and my husband are supposed to get a loan for a house in the spring. i hope its still possible.

The lower score shouldn't be a big deal as 749 is still an excellent credit score. What may affect you is your debt to income ratio. The new loan obligation will affect how much of a loan you can qualify for.

[HappyNewMe]

Originally Posted by dazzleman

That's the sort of thinking that has gotten people into so much trouble. It's never a good idea to take on debt and make purchases just to improve a credit score. It probably won't achieve the desired goal anyway.

You are wrong! It DOES help a lot when person's credit is just establishing and slowly raising. Having another loan shows credit worthiness and can raise a score. I have seen it first-hand with mine.