How Can a Car Loan Affect Your Credit Score?

Does applying for a car loan affect your credit score? It’s one of the most common questions Fido Finance brokers hear. It’s not a straightforward answer, though.

The truth is a car loan can affect your credit score, but not in a single predictable way. The impact depends on multiple factors like how you apply, which lender assesses your application and how you manage the loan over time. It’s not a simple guaranteed dip, then rise.

This guide explains how Australian credit reporting works, what loan-related events may appear on your credit file and how you can approach an application thoughtfully.

This article is general information only and doesn’t take into account your objectives, financial situation or needs

Your Credit Report and Your Credit Score: What’s the Difference?

It’s easy to get these two terms mixed up. They are different, though.

• Your credit report is a detailed record of your credit history. It includes the credit products you’ve held, your repayment history, any credit applications you’ve made and information about defaults or financial hardship arrangements. These reports are held by credit reporting bodies.
• Your credit score is a number calculated from the information in your credit report. It gives lenders a snapshot of how you’ve managed credit in the past.

The two main credit reporting bodies in Australia are Equifax and Experian. Each of them may hold different information about you, and their scales differ. Your score can vary depending on which body you check with, and which model a lender uses to assess you.

You have the right to request a free copy of your credit report from each body at least once every three months. It’s a good idea to check it, so you have an understanding of your credit rating. Checking your own report is considered a soft enquiry. This means it won’t affect your score and isn’t visible to lenders.

What Happens When You Apply for a Car Loan?

When you formally apply for finance, the lender will access your credit file as part of the assessment. This is known as a credit enquiry and it may be recorded on your report.

How this affects your score depends on the scoring model being used and your overall credit profile. There isn’t a universal number that applies to every person or every application. What is consistently true is that multiple credit applications lodged in a short period can create multiple enquiries on your file. Some lenders may view this pattern as a signal of financial pressure when assessing an application.

This is one reason why working through a broker can be useful. Rather than approaching ten lenders on your own and generating ten separate enquiries, a broker can assess your situation and work with a targeted selection of lenders. That said, a formal application still involves a lender accessing your credit file.

What Happens After Your Loan Settles?

Once your loan is active, it may appear on your credit report under comprehensive credit reporting (CCR). This allows participating lenders to provide a fuller picture of your behaviour. It covers the good and the bad, rather than focusing on serious issues like defaults.

Under CCR, lenders who participate in the scheme can report both positive and negative repayment information. This means:

• On-time repayments may be recorded and visible to future lenders as part of your repayment history
• Late or missed payments may also appear on the report. Generally, it’s those that are not paid within 14 days of the due date.
• Formal defaults are separate. A default can only be recorded when the overdue amount is $150 or more, at least 60 days have passed since the payment was due and you’ve been notified by the credit provider beforehand. A default stays on the report for five years.
• The loan account itself also forms part of your credit history. For example, the credit limit, opening date and type of loan.

How this information is weighted in any future credit assessment depends on the lender’s own policies and the scoring model they use.

Why Your Repayment History Matters

Consistent on-time repayments over the life of a car loan can be relevant to future assessments. It shows lenders that you’ve managed a similar obligation well before.

The opposite is also true. Missed payments can remain on your credit report and may affect how lenders assess future applications. The most meaningful step you can take for your credit file is to only borrow what you can comfortably repay and make repayments on time. This applies to all lines of credit, including credit cards, personal loans and buy now, pay later services.

How Lenders Assess an Application

Your credit score is one input. When a lender reviews a car finance application, they’re looking at the full picture. That often includes:

• Income: Is it stable, consistent and enough to support a loan?
• Employment: How long have you been in your current role and what type of employment is it?
• Living expenses: How much does it cost to run your household?
• Existing debts: Do you have credit cards, personal loans, buy now, pay later services and a mortgage?
• Bank conduct: This is your account behaviour, including dishonours and overdrafts.
• The asset: The vehicle’s age, value, condition and seller type.
• Credit history: The information on your credit file, including repayment history and enquiries.
• Lender policy: Each lender has its own criteria, which can differ significantly.

A strong credit score doesn’t guarantee approval. At the same time, a lower score doesn’t mean automatic decline. Lender policies vary, and some are better suited to certain applicant profiles over others. They may also adjust the interest rate according to your history. This is why comparing lenders can make a difference.

Common Credit Myths

FIDO SAYS: Any application is subject to the lender’s assessment and responsible lending obligations.

How to Check Your Credit Report

You can request a free copy of your credit report from Equifax and Experian directly. It’s worth doing this at least once a year. It’s also worth checking with both bodies, as they may hold different information. When you receive your report, check to see:

• Are all listed loans and debts yours?
• Are your personal details correct?
• Are there any defaults you weren’t notified about?

If something looks wrong, you can ask the credit reporting body to investigate and correct it. This is a free service and doesn’t require a third party to resolve it.

What to Do Before Applying for Finance

If you’re considering applying for a car loan, use this checklist before lodging an application or meeting with a broker:

• Check your credit report so you know what a lender will see before they review it.
• Fix any errors with the relevant credit reporting body.
• Understand your budget and work out what repayment amount is comfortable.
• Have documents ready, like payslips, ID, bank statements and ABN details if you’re self-employed.
• Avoid applying to multiple lenders in quick succession as this can work against you.
• Disclose your financial position accurately & be upfront about where you’re at.