cancel
Showing results for 
Search instead for 
Did you mean: 
Pete14
Returning Member

Why would my score drop after purchasing a new vehicle by 60 points?

 
1 Best answer

Accepted Solutions
tagteam
Level 15

Why would my score drop after purchasing a new vehicle by 60 points?

That sounds like a rather large decrease, but it could be a result of a combination of higher credit utilization, new credit, and hard inquiries.

 

See https://www.myfico.com/credit-education/whats-in-your-credit-score

View solution in original post

2 Replies
tagteam
Level 15

Why would my score drop after purchasing a new vehicle by 60 points?

That sounds like a rather large decrease, but it could be a result of a combination of higher credit utilization, new credit, and hard inquiries.

 

See https://www.myfico.com/credit-education/whats-in-your-credit-score

View solution in original post

Opus 17
Level 15

Why would my score drop after purchasing a new vehicle by 60 points?

Your credit score is a crude way of predicting your ability to repay the next loan that you might apply for. It is not the current lenders who look at it, but the next lender.


As such, you did several things that will tend to lower your score.
a. When a bank checks your credit score for a loan application, that is called a hard inquiry, and that lowers your score because it indicates that you are trying to borrow money.  If you need to borrow money, that might indicate that you were in financial trouble and would be a greater risk to the next lender.
b. When you opened the car loan, you increased the total amount of money that you have borrowed. That may indicate to the next lender that you would have difficulty paying off a new loan. 
c. You also increased your total debt as a percentage of your available debt. For example, suppose that before you bought the car you had credit cards with a total credit limit of $10,000 and your average credit usage was $1000 per month. That is 10% credit utilization. With the car, you added a $30,000 car loan with a $30,000 balance. Now, your credit utilization is $31,000 out of a possible $40,000, or 75% credit utilization ratio.  That also makes you look risky to the next bank that you ask to lend you money.

 

As you pay off the car loan, your credit score will gradually improve, because the hard inquiries will fade into the past, you will have an on-time payment history, and your credit utilization ratio will go down as you pay down the balance.

*Answers are correct to the best of my ability at the time of posting but do not constitute legal or tax advice.*
v
Privacy Settings