If you recently purchased a car and noticed a significant drop in your credit score, you may be wondering what went wrong. There are several reasons why your credit score could have dropped after buying a car, so let’s take a closer look.
The Hard Inquiry
When you apply for a car loan, the lender will check your credit report, resulting in a hard inquiry. Hard inquiries can temporarily lower your credit score by a few points. If you applied for several car loans within a short period, this could cause your credit score to drop by 100 points or more.
Higher Credit Utilization Ratio
If you financed the car through a loan, this could increase your credit utilization ratio, which is the amount of credit you’re using compared to your credit limit. This ratio is a significant factor in calculating your credit score, and a high utilization ratio can hurt your credit score.
Longer Credit History
If you’re new to the credit game, taking out a car loan can have a more significant impact on your credit score. Credit history is an essential factor in determining your credit score, and a new car loan could cause a dip in your credit score.
Late payments can have a severe impact on your credit score, and missing even one payment could result in a significant drop. If you’re having trouble keeping up with your car payments, contact your lender to see if they can offer any assistance.
Lowered Average Age of Accounts
The average age of your credit accounts is another critical factor in determining your credit score. If you’re new to credit and take out a car loan, it could significantly lower the average age of your credit accounts, leading to a drop in your credit score.
In conclusion, several factors could have contributed to your credit score dropping 100 points after buying a car. However, with responsible credit use, timely payments, and a little patience, you can recover and improve your credit score.