Rateworks auto loan refinance
July 1, 2021

Does Car Refinancing Hurt Your Credit?

Discover the truth about car refinancing and its impact on your credit score. Learn how temporary hard inquiries and changes in credit utilization ratios can affect your score, but also find out how securing a lower interest rate through refinancing can improve your credit profile in the long term. Get the facts and make informed decisions with our expert advice.

Refinanced car driving on the road
Written by

Sarah T.

The impact of car refinancing on your credit score

Car refinancing is a popular option for many vehicle owners looking to lower their monthly payments or reduce the overall cost of their auto loan. However, some people may be hesitant to pursue refinancing out of concern that it could negatively impact their credit score. In this article, we'll examine the relationship between car refinancing and credit scores to help you make an informed decision.

The impact of hard inquiries on your credit score

  • Applying for a car refinance loan triggers a hard inquiry on your credit report
  • Hard inquiries can temporarily lower your credit score by a few points
  • Temporary impact usually only lasts a few months

Changes in credit utilization ratios

  • A new car loan with a higher balance can increase your credit utilization ratio
  • An increased credit utilization ratio can temporarily lower your credit score

The potential for a positive impact on your credit score

  • Securing a lower interest rate through car refinancing can have a positive impact on your credit score over time
  • Lower interest rates typically result in lower monthly payments
  • Lower monthly payments can free up more income to pay off debts or bills, improving your overall credit profile

In conclusion, while car refinancing can result in a temporary decrease in your credit score, the long-term impact will depend on factors such as the interest rate you secure and your overall credit profile. If you're considering refinancing your car loan, it's a good idea to speak with a financial advisor or credit specialist to determine whether it's the right choice for you.