How Will Car Loan affect FICO?

[DrJim]

I took out a car loan in February and have made two payments on it.  It seems I once read here that an auto loan will ding your score for the first six months, then help as you make on time payments.

Any truth to this?  I have no other debt and have been able to clean up my report other than two baddies that will fall off in the next year or so.

Thanks, to all of you, for the help over this past year!

[Jazzzy]

Hi DrJim,

An account is considered "new" for the first year, so I'm not sure anything changes at 6 months.

You are right that making on time payments on a car loan builds good history and helps your scores as it ages.

Congratulations on cleaning up your reports. Good feeling, isn't it?

[Lel]

Here's my recent experience: I bought a new car in August, and when the account hit my report I lost 14 points.  My score dipped a little more due to other change on my report (another 10 points).  About 6 months later, my score is a few points higher than when I first bought the car.

When I bought my car, I was PIFing several cards before the statement date, to reduce the number of accounts with balances and boost my score.  After I bought the car, I let more balances report, so at least some of my score drop was due to this.  I started PIFing again in January in a futile attempt to get another credit card, so that helped my score come up again.

My auto loan is still listed as a new account; however, I'm not certain about the magnitude of the new account effect at this point.  Even though my score is higher, I don't think the effect has completely disappeared, because as mentioned above there were other changes to my report.  The only thing I can say about my situation is that having a new auto loan isn't keeping my score in a persistently lower range.

[Anonymous]

Hi DrJim,

Well, I'll throw this into the mix of things to consider:

DH had a two point EQ FICO ding when he opened a car loan last November -  and no ding with the inquiry.  It's less than six months, and his score is higher than when he app'd for the auto loan.

OP:  What was the impact on your score when you opened the car loan?  What is your score now?

There's gotta be a bucket influence at work as well.  Although it's frustrating, score impacts of new accounts and aging vary depending on so many things.  Which bucket you're in is one factor that affects the score impact of anything you do.

Our experience is similar to Lel's, having a new auto loan isn't keeping DH's score in a persistently lower range.

[Jazzzy]

I should add, too, that we got a used car loan in November. Both my and my DH's scores are the same or higher than before we got the loan. No change in utilization. No change in anything.

[Anonymous]

I would agree with that assessment;  I took a 12 point ding with a new car loan, but after I paid off the loan FICO was even higher than before.  I had a gradual increase in score after the initial sharp ding, then a major bonus once the loan is paid off, title in hand and the account closed.

Owning the car also had a pseudo-bonus...a deer hit my fender, so I personally received the $1200 check from the insurance company (if the loan was still with the CU then they would've gotten the check).  So I paid $150 for a brand new primed fender, painted and clearcoated it, and did the work myself.