Repair Credit Score

Question: Can refinancing an Auto loan hurt my Credit Score?

I have been in the process of building up my Credit Score and have done a pretty darn good job if I can say so myself. I have a new car that I've financed and still owe about 20,000. Currently I have a rate of 6.74, however I see an opportunity to get a better rate on my loan. Will doing so set my score back a bit? Does it matter if I refinance w/ a new bank as opposed to trying to refinance w/ the same bank?

Answer: I would consider myself pretty knowledgeable about credit -- my husband used to own a mortgage company.

When you go to refinance your car even if it is with the same institution they will pull your credit. Your current lender will want to make sure you are still paying all your bills on time.Every time your credit is pulled it will knock down your score a few points (not many, most likely around 5).

What a lot of people do not realize is that when you apply for financing directly through a dealership your credit will be pulled multiple times. This is because they use a variety of lenders and will submit your application to several lenders to see who will approve you. They get paid by the lenders for getting the loan, so most likely they will pick the lender that is willing to pay them the most.

With all that being said... If you can get a better interest rate you should! Losing 5 points of your score is not a big deal and will come back as long as you pay your bills on time. Before you give a bank your personal information, make sure they will only be pulling your credit once.

Once you get a new loan, your Credit Report will show that your old loan has been paid off which will bring your score up more than the few points that you lost from your credit being pulled.

Things that will also effect your credit negatively are:

Having too many lines of credit open.

Not having enough lines of credit open.

Credit lines not being open long enough.

The balances of credit cards being too high relative to the credit limit.(i.e. your limit is $15,000 and you owe $13,000)

Being late paying credit card bills or loans (more than 30 days)

Having too many credit inquiries (your credit pulled)

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Ideally you should have at least 4 lines of credit open. This is the minimum that most mortgage lenders require. The longer you have these lines of credit, the higher your score will go (as long as you pay on time!)

Even if you open a credit card and never use it, it reports to your Credit Report as being paid on time each month and will help build your credit.
(Some credit cards will close if left inactive for too long, so you may need to make a small purchase every few months)

On a side note...

I would get a quote from a lender other than your current one and find out what rate they can offer you (get it in writing). Then go back to your current lender and say I'd really like to stay with you but, I have been offered a much better deal. Give them the opportunity to beat it to keep your business. Don't just let them match it -- make them beat it. The most important thing you should know is EVERYTHING IN LIFE IS NEGOTIABLE! And the better you get at negotiating, the more successful you will be in life. This is a great opportunity to start honing your skills!

Hope this helps. Glad to see you are so aware of how important your credit is. I wish you the best!

Getting A Low Rate Auto Loan