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Survey: Only 40% of car-buyers check their credit before major purchase

By
Megan Wells
  • Credit
  • 4 minute read

Are you hunting for a new car and wondering how this purchase might affect your credit?

A new survey from WisePiggy.com shows that consumers aren’t always checking their free credit score and credit report before purchasing a car, and many don’t realize the effect the purchase can have on their credit profile. There was a negligible 1.9 percent difference between respondents answering yes (37.7 percent) and no (39.6 percent) to the question “Do you think buying a car will improve your credit?” The remaining 22.7 percent of the respondents were altogether unsure. 

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How prepared are you?

A credit score is one of the most important factors to consider while buying a car with a loan. Out of respondents who have purchased a car, only 40.08 percent checked their credit report, and only 42.74 percent of buyers checked their credit score before signing on the dotted line. Our calculations show that differences with credit scores mean thousands out of your pocket. The most popular car price range according to WisePiggy’s survey was $10,001-$20,000 (33.03 percent of respondents paid somewhere in this range for their vehicle), so let’s assume you’re buying a car for $15,000. Someone with excellent credit saves $5,460 in interest versus someone with a poor credit score.

Chart comparing credit score and interest paid on car loan

The higher your credit score, the better your chances are to qualify for a lower interest rate. Knowing your credit score will help you to shop around and find the lowest possible rate for your credit profile. It’s worth noting that each auto loan application will result in a hard inquiryon your credit report, which can have a minor negative impact on your credit score (a drop of five points or less, if any, per inquiry). As noted on myFICO.com, FICO scores ignore auto loan inquiries made in the 30 days prior to scoring, so, if you find a loan within 30 days, the inquiries won’t affect your scores while you’re rate shopping.

Financing

How you choose to pay is perhaps the most direct way buying a vehicle can affect your credit.

Taking out a loan proves to be the most common way to purchase a vehicle — two-thirds (66.37 percent) of WisePiggy survey respondents who have ever purchased a vehicle (978 of the 1,000 surveyed) used an auto loan to cover a portion, if not all, of their vehicle purchase. Here’s the breakdown of how survey respondents paid for their vehicles: 

Bar graph of survey results

Showing diversity

Credit scores are determined by a number of factors, including type of credit used, which accounts for 10 percent of your credit score. A borrower’s ability to successfully manage a mix of revolving credit (credit cards) and installment credit (auto loans) can improve your credit.

New ride, better credit: It can happen

An auto loan can be a great way to establish credit history, and a strong record of on-time payments is a great way for a borrower to look more desirable to future lenders. An impressive 80.57 percent of survey respondents said they have never missed a car payment which supports the idea borrowers are handling their debt responsibly, inevitably improving credit scores, as payment history accounts for roughly 35 percent of your FICO credit score.

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Length of credit history accounts for 15 percent of your FICO score.  A car loan typically spans 36, 48 or 60 months, conclusively establishing history on your credit record. Assuming you don’t default on a payment, this can also help improve your credit score.