Buying a new car means freedom, independence, and maybe even a fresh Spotify playlist.
But there’s one BIG question you need to answer whether it’s your first car or you’re upgrading an existing vehicle…
“What will a car loan do to my credit score?”
It’s normal to be uncertain about how a loan will impact your overall financial health and you might feel pressure to make the “right” choice or risk tanking your credit score.
So here’s the good great news:
A car loan, when repaid on time, can be one of the best tools for building the type of proven and diverse credit history that lenders love.
In this guide, we’ll release the handbrake and show you how a car loan affects your credit score, bust the top credit myths standing in the way of a better deal, and show you exactly how Fido Finance can make your car loan application process simple, transparent, and easy.
P.S. Need a quick refresher on how your credit score works? Check out our no-frills guide to get up to speed.
Table of Contents
How a car loan impacts your credit score
Applying for a car loan can affect your credit score by causing a short term dip followed by a long-term gain.
Here’s what that looks like.
Step One: You apply for a car loan
When you apply for a loan – whether it’s a car loan, travel loan or personal loan – your lender will perform a hard enquiry. This is a fancy way to say a lender has pulled your credit file to check your credit score and see whether you’re a good fit or too risky to borrow money.
This initial enquiry may cause a small, temporary dip in your score (usually less than five points out of a potential 1,000).
Step Two: You repay your car loan
Making all your car loan repayments on time demonstrates an ability to handle debt – this may result in a positive impact on your credit score over time.
Consistently making your car loan payments on time every month is how you build a strong, positive financial track record that lenders look for when assessing your application.
FIDO SAYS: Lenders also like to see that you have a diverse credit mix (e.g. credit cards, mortgage, and a car loan) because it shows you can responsibly manage different types of credit over time. That’s why a car loan isn’t just how you score a new set of wheels, it can actually improve your credit score too.
As well as putting you in the driver’s seat, a car loan can be a proven way to improve your credit score and unlock more financial flexibility in the future – just make sure you make your repayments on time!
What’s a good credit score in Australia?
The Australian credit scoring system can seem a little confusing because there are different reporting bodies… and they all use different credit score scales!
The main credit reporting bodies include:
To keep things simple (as good finance should be), use these guidelines to see which credit score category you’re in.
|
Rating Category
|
Equifax Range (Max. 1,200)
|
Experian/Illion (Max. 1,000)
|
|---|---|---|
|
Excellent
|
853 to 1,200
|
800 to 1,000
|
|
Very Good
|
735 to 852
|
700 to 799
|
|
Good
|
661 to 734
|
625 to 699
|
|
Average
|
460 to 660
|
500 to 624
|
According to data from Equifax, the average credit score is around 855, putting the typical Australian in the ‘Excellent’ category.
But don’t stress if you’re not quite there yet, average credit scores vary by age so it’s totally normal to start with a lower number that improves over time.
|
Age Group
|
Average Credit Score
|
|---|---|
|
18-30
|
731
|
|
31-40
|
829
|
|
41-50
|
868
|
|
51-60
|
918
|
|
61-70
|
935
|
FIDO SAYS: You can check your credit score for FREE at least once every 3 months through any of the main reporting agencies (Equifax, Experian, Illion). Checking your own score generates a soft enquiry. This won’t affect your credit score and isn’t visible to lenders, so you can check your score as often as you like.
Common credit myths it’s time to unlearn
|
Myth
|
Truth
|
|---|---|
|
Every loan hurts your credit score
|
While an application causes a small dip, managing your loan well is a huge long-term benefit that builds positive history.
|
|
You should avoid credit completely
|
Having no credit history makes you a mystery to lenders. Responsibly managed credit (like a car loan) proves you’re reliable.
|
|
You need perfect credit to apply for a car loan
|
While excellent credit gets the best rates, we have lenders for all credit profiles. We focus on finding the right solution for you.
|
|
Comparing lenders will damage your credit score
|
If you apply to ten lenders, you can risk lowering your credit score. At Fido Finance, we compare offers and safeguard you with minimal enquiries so your score is protected.
|
|
Checking your credit score hurts it
|
Checking your own score is always a soft enquiry and has zero negative impact. Go nuts and do it often!
|
Thinking of checking your credit score? Beware the DIY!
When shopping around for the best car loan, you might consider applying to multiple lenders to see who gives you the best terms and rates (a.k.a throwing spaghetti at the wall to see what sticks).
The downside to DIY is that each application to a bank or car dealership creates a hard inquiry.
Too many of these applications in a short time can signal to lenders that you might be in financial distress or desperate for credit, which dramatically increases the risk in their eyes.
This can mean missing out on your car loan. Or, being offered a loan with a higher interest rate and more unfavourable loan terms (ouch).
With Fido Finance, you can enjoy pre-approval in as little as an hour
At Fido Finance, we partner with new and used car buyers who want to hit the road with minimal impact on their credit score.
Here’s how we eliminate your risk and make the process easy 👇
- We secure obligation-free pre-approval from our panel of lenders (often in as little as an hour).
- You shop for cars with confidence knowing your true borrowing power and know exactly what you can afford to borrow before you hit the dealership.
- We limit hard enquiries to protect your credit score by comparing offers from our panel of 30+ lenders and proceeding with one application. That’s how we minimise any negative impact and maximise your chance of approval at the best rate.
FIDO SAYS: Getting pre-approved means a lender has reviewed your profile and agreed to lend you a set amount. Think of it like having cash in your pocket, ready to go on your next big purchase. So once you’ve found the perfect deal, let your Fido Finance broker know. We’ll lock in the final details, make sure you’re happy, and assist you in funding the loan.
Trust Fido Finance to compare the best rates and protect your credit score
At Fido Finance, our goal is to eliminate guesswork and protect your credit score. So whether you’ve buying your first car or upgrading to your next car, the process is simple, straightforward and designed to shield your credit rating.
If you’re considering a car loan, start an obligation-free chat with the Fido Finance team. With access to a full panel of lenders and decades of combined experience, our car loan experts help you to minimise the impact on your credit score and give you the easiest path to approval.
Get in touch with the team at Fido Finance online or call us on 13 FIDO (13 34 36) now to explore your car loan options.
