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What impact does a Car Loan have on your credit score?

jaspreet1991

What factors go into determining credit scores?

Payment history, amount due, duration of credit history, credit mix, and new credit are all factors considered by credit agencies like CIBIL.


  • Payment history carries the most weight - around 35% of the time. As a result, someone with a perfect track record of on-time payments will naturally score well on this criterion.

  • Amount owed: This criteria is often given a 30% weighting. This is the amount of debt a person has accumulated in relation to her entire annual income. This ratio should be as low as possible.

  • Credit history length: This factor has a 15 percent weighting and is based on how long a person has been borrowing and repaying money. A longer history is seen to be preferable.

  • Credit mix: This factor, which is usually given a 10% weighting, looks at the different types of debt a person has, such as credit cards, personal loans, and vehicle loans.

  • New credit: This statistic, which has a 10% weighting, examines how many new loans a person has applied for.

For Example:

Sakshi Singh intends to purchase a new vehicle. She is concerned, however, that doing so would have a negative impact on her credit score. She doesn't want that to happen since she wants to purchase a house in five years and will need a large-ticket home loan to do so. Is her worry, however, justified? Let us assist Sakshi in understanding how a vehicle loan may affect her credit score


When Sakshi filed for a vehicle loan, she was aware that her credit score might suffer a brief knock on a few metrics.


She shouldn't let that worry her too much, though. In the long run, if she is a good borrower and pays her vehicle loan EMI (Equated Monthly Instalment) on time, her credit score will improve.

She will score better on the 'Payment History' criteria if she has a clean payback record throughout time. Similarly, she will score higher on the 'Length of Credit History' criteria with such a payback history and if she is taking out a car loan for a 3-5 year term.


While she may owe a bigger amount at the start of the loan when she buys her new automobile, if she pays the debt off on time, the amount owed will decrease, allowing her to improve her 'Total Amount Owed' score.


Taking out a new auto loan and repaying it on time will benefit Sakshi's credit score if she keeps her other credit, such as credit card expenditures and personal loans, within reasonable bounds.

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