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sotirisp

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Credit Score went down after a new car purchase
Hi Guys, I just purchased a new car last month (May 2016) and my credit score went down by about 50 points this month (June 2016) after the car loan added to my credit profile.
Is that normal?

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Is That Normal?

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Is that normal is a difficult question to answer.  A drop in your score after having a new account is normal, but the amount of points you drop is really a guessing game.  In my experience, 50 points is above average, but not out of the realm of possibility.  There are three reasons for this drop.

1.  Average age of credit history.  A portion of your score is the average age of your open credit accounts.  So, for example, let's say you have an open credit that has been open for 10 years, another credit card open for 2 years.  Your average credit age is now 5 years, which is respectable.  Today, you buy a new car.  Well, with this account added your average age has now dropped to 4 years.  Hence a drop in your score.

2.  Inquiries.  When you try to get financing through a dealership they take a shotgun approach to finding lending.  They will often submit an application on your behalf to several, some times up to 10 companies, to get you the lowest rate or to find a company willing to finance you.  Each of those companies run your credit, causing a new credit inquiry for each company.  Each inquiry will drop your credit score.  Luckily, SOME scoring models will count all the inquiries as one single inquiry when you are shopping around for a car or home loan (other types of inquiries are never counted as just one).  However, this number of inquiries can hurt your score.  Inquiries impact your credit score for 12 months.  After 12 months they are no longer counted in your score but remain on your credit report.  They will completely fall off your credit report just over 24 months.

3.  Now you are in debt.  Creditors consider debt when considering to approve/deny you.  A new car is a significant increase in your debt that appears suddenly.  As you make payments on time with this account, you will see your score grow.

Continue to keep a perfect payment history on your new car loan and you will see your score thank you for it.  You will likely recover the points you dropped and then some, assuming you have no new negative information added in the mean time.

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Check your FICO scores to see what they did, they may have went up.

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