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Can refinancing a car loan affect your credit score? Advertiser Disclosure Advertiser Disclosure We are an independent, advertising-supported comparison service. Our aim is to assist you make smarter financial decisions by offering interactive tools and financial calculators that provide objective and original content. This allows users to conduct research and compare information for free to help you make financial decisions with confidence. Bankrate has partnerships with issuers including, but not restricted to, American Express, Bank of America, Capital One, Chase, Citi and Discover. How We Earn Money The offers that appear on this site are from companies that pay us. This compensation may impact how and when products are featured on the site, such as the order in which they appear in the listing categories in the event that they are not permitted by law. Our loans, mortgages, and other home lending products. This compensation, however, does not influence the content we publish or the reviews that you see on this site. We do not contain the vast array of companies or financial deals that could be open to you.



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5 minutes read. Published 12 January 2023
Authored by Mia Taylor Written by Contributing Writer

Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation's leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com.







Editor: Helen Wilbers Edited by

Helen Wilbers has been editing for Bankrate from late 2022. He is a fan of clear reporting that helps readers confidently get deals and make most appropriate choices regarding their finances. He specializes in auto and small business loans.









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Refinancing a car loan could get you more favorable loan terms and also free money in your budget. But what happens to your score on credit? There's a chance that you'll see a slight drop of your credit rating. However, don't be afraid to stay away from simply because of a temporarily lower score. The decision could turn out to be wise choice that will result in costs savings or financial relief. Refinancing an auto loan can affect credit refinancing a car loan can impact your credit profile. This is due to your FICO credit score. It is a provided by Fair Isaac Corporation. Fair Isaac Corporation. FICO scores are determined by the way the credit you have managed, which includes your credit history, your payment history, how much you owe in debt as well as the time period of your credit history and even recent credit applications -- like refinancing your vehicle loan. The credit scoring model could lower your score by a couple of points when you apply for credit, and a request for hard inquiry is logged on your credit report. In addition, opening a new credit account on your credit report decreases how old your credit cards, which can affect the overall score of your FICO. This article will take a closer look at how refinancing a car loan affects your credit score: It can trigger hard inquiries. Each time you apply for an loan, an inquiry on your credit report is created, which can cause the slightest decrease of your FICO score. Hard inquiries are in your credit file for as long as two years, but will only affect your score for up to 12 months. This means that -- if it requires you to apply for a new loan can temporarily affect the credit rating. It lowers your accounts' average age. Refinancing also decreases the average age of accounts, leading to a possible decrease in your credit score. It's good to know that the age of your account is only 15 percent of your credit score. Your score should improve quickly if you responsibly manage the new auto loan and other debt accounts. The impact is greater if it's you report it as a brand new loan: If your loan refinance is considered a "new" loan, it can have a greater impact on your credit score. The refinance will not only trigger a credit inquiry, but also have the added consequence of generating an additional "open date" on your credit report. When a new open date shows up, it tells the credit agencies that you have accepted a new loan obligation, which will increase the total amount of debt. What is the length of time the credit rating of my client be affected when I refinance? While refinancing a vehicle loan can affect the credit rating of your client, these impacts are temporary. Within a few months of payments that aren't interrupted, your credit score should return to where it was prior to the time you refinanced. In some instances it could even rise slightly. If you have any hard questions regarding refinancing, the impact on your score due to these inquiries will diminish in a matter of one year. How to minimize the harm on your credit rating Although your credit score might drop when you refinance however, there are several ways to increase your credit score: Apply for prequalification. Find the best rate on refinancing. After you've compiled a list of lenders you prefer, sign up to view potential financing offers without affecting your score on credit. Apply within a certain window. If you make loan applications within the 14-day time frame, many credit scoring models will combine all of them into one single inquiry. This is referred to as rate shopping. It can also reduce the effect of your score. You must make timely auto loan payments. The most important aspect of your score on credit is the credit history. It is responsible for 35 percent of your credit score therefore, making sure you pay your loan on time each month can help your credit score bounce back. Do not wait to open new credit accounts. Your credit age will decrease as you refinance. Refraining from opening new credit accounts following refinancing can help improve this number and possibly raise your credit score over time. How refinancing a car loan is done When you are looking to refinance your car loan, follow these steps to make the process seamless: Check your credit. Review the credit reports to be sure it's clean of errors and file disputes to address any issues you find. This step can be helpful . A greater score of 670 or above -- can increase your chances of securing the next loan with attractive conditions. Find the top loan deals. There's no shortage of , so you need to shop around for the best price. Read lender reviews and get prequalified to see loan offers you may qualify for. Complete a formal application. Many credit unions, banks and online lenders offer simple online applications. You can also visit a branch or call in to submit an application. You may receive a lending decision in a matter of minutes, however the financial institution may take some time to sign your closing papers. Seal the deal. Check all the loan documents and resolve any questions or concerns to the lender. When you've signed the loan documents, the new lender will send you a an amount to cover your current loan or handle the transaction. If you want to refinance your vehicle loan There are several reasons that refinancing your automobile loan may be beneficial. But, it is important to proceed . It is worth looking into refinancing in the event that auto loan rates have slowed since you obtained your auto loan and your score is improving and you are now eligible for a better rate. It is also a good option for those who are going through difficult financial times and need lower auto payments to free up money. If you're paying the same interest rate, you may be able to extend the loan term, which lowers your monthly payments. It is possible to look into a more than refinancing. This involves altering the monthly payment and due date, or the interest rate for your existing loan. You should also refinance if you need to add or modify the loan. What is the worst idea to refinance the car loan? There are a handful of scenarios where refinancing is not a good decision. A vehicle that is old or has a high mileage: If you own an older car or one with high mileage, it may be advisable not to refinance. It's not worth paying the costs associated with refinancing if you'll need to replace your car in the near future. Refinancing costs are more expensive than the benefits If you've already paid off the bulk of the initial loan value, costs related to refinancing could outweigh the benefit. Looking to apply for credit in the near future: If you are applying for more credit or loans within the next few months, you may consider rethinking refinancing. Refinancing your car loan can trigger a credit inquiry and lower the average time to repay your loans, which could affect your score on credit. If you aren't able to get a great rate If the rates you are given don't match the current rate of interest There's no reason to refinance. The bottom line is you're paying your car loan. It may temporarily harm the credit rating of yours. But the financial benefits may significantly outweigh a drop in credit rating. There are also ways to reduce the negative impact on your credit score, and also help it rebound when you apply for refinancing. Before deciding if refinancing makes sense, you should be familiar with the process to avoid any surprises. Additionally, research the lenders, apply for prequalification and calculate the figures to make an informed choice.


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Written by a Contributing Writer

Mia Taylor is a contributor to Bankrate and an award-winning journalist who has two decades of experience and worked as a staff reporter or contributor for some of the nation's leading newspapers and websites including The Atlanta Journal-Constitution, the San Diego Union-Tribune, TheStreet, MSN and Credit.com.



Edited by Helen Wilbers Edited by

Helen Wilbers has been editing for Bankrate from late 2022. He is a fan of the clarity of his reporting, which helps readers easily land deals and make the most appropriate choices regarding their finances. He specializes in small and auto loans.











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