A credit bureau, also known as a credit reporting agency, is an organization that gathers consumers’ credit information and uses it to create credit reports. Lenders, employers, landlords, and other parties can pay credit bureaus to access this information, which they use to make important decisions. 

For example, a lender may need to access an applicant’s credit report to determine their eligibility for a new loan. A landlord may run a credit check to assess how likely it is that you will pay your rent.

If you’re taking out a car loan, your lender will report this information to a credit bureau, which means it will impact your credit score. What credit bureau do car loans use? How will taking out a car loan affect your credit? Here’s everything you need to know:

What Credit Bureau Do Auto Lenders Report to?

Every lender is unique. However, the vast majority of auto lenders report to the three major credit bureaus, which are Experian, Equifax, and TransUnion. This means your auto loan will appear on your credit reports from these three credit bureaus. 

What Credit Bureau Do Car Loans Use

How Will a Car Loan Impact Your Credit?

A number of factors are taken into consideration when calculating your credit score. Here’s a look at how taking out a car loan will impact each of these factors:

  • Payment History
  • Amounts Owed
  • Credit History Length
  • Credit Mix
  • New Credit

Payment History

Your payment history allows lenders to evaluate how well you have repaid your debts in the past. It provides lenders with information on missed payments, late payments, and accounts sent to collections

Your payment history is the most important factor in the calculation of your credit score. It accounts for about 35% of your total score. Because it accounts for such a large percentage, missing even one payment could have a negative impact on your credit score. 

If you take out a car loan, your payment information will be sent to the credit bureaus. This means if you miss a payment or make a late payment on your car loan, your score could drop. However, the opposite is also true. If you consistently make on-time payments on your car loan, your score may improve over the course of your loan.

Amounts Owed

The amount of money you owe to creditors also impacts your credit score. This factor accounts for 30% of your total credit score. When it comes to car loans, the credit bureaus will analyze how much of the loan you still owe compared to the original loan amount.

For example, say you take out a car loan for $15,000. If you haven’t made a single payment on your loan, you still owe the full amount, so your credit score may drop slightly. However, as you make regular payments on your loan, the amount you still owe will drop, which could cause your credit score to improve. The more you pay off, the higher your score may climb.

What Credit Bureau Do Car Loans Use

Credit History Length

The length of time you have held credit accounts makes up 15% of your credit score. The longer your credit history length, the better. This is because a lengthy credit history indicates that you are capable of managing debts and repaying the money you owe.

If you take out a car loan, you are adding a new credit account to your portfolio. As a result, the average length of your credit accounts will go down, which could cause your score to drop slightly. However, this won’t have a huge impact since it only accounts for 15% of your score. As more time passes, your credit history length will extend, which means your score should bounce back in no time.

Credit Mix

Your credit mix, which is a measure of the diversity of the credit accounts in your portfolio, accounts for 10% of your total credit score. Ideally, you may have a healthy mix of both revolving and installment credit accounts.

Revolving accounts are those without an end date or fixed amount, such as credit cards. Installment loans such as mortgages, car loans, and student loans, have end dates and fixed amounts.

If taking out a car loan makes your credit portfolio more diverse, it could improve your credit score. You shouldn’t expect a huge increase in your credit score, though. Remember, this factor only accounts for 10%, so it won’t have a major impact.

New Credit

New credit, which accounts for 10% of your credit score, is the final factor that impacts your creditworthiness. This factor is a measure of how many new lines of credit you have taken out recently and how many new hard inquiries have appeared on your credit report.

Every time you open a new line of credit, your score will temporarily drop. In other words, if you take out a car loan, your score will drop slightly, however this is temporary. As long as you don’t open multiple new accounts within a short timeframe, your score should recover quickly. 

If you open a number of new credit accounts within a short period of time, your score could decrease significantly. This is because opening multiple new accounts indicates that you are struggling to manage your finances, which makes you a high-risk borrower.

How to Protect Your Credit When Taking Out a Car Loan

If you’re concerned about your credit, there are a number of steps you can take to protect your credit when taking out a car loan. Here’s what to do:

  • Make on-time payments. The most important thing you can do is make on-time payments on your loan. If you do this, taking out a car loan could actually improve your score over time.
  • Don’t borrow more than you can afford to repay. Borrowing too much may make it difficult for you to make payments, which could put you at risk of defaulting.
  • Avoid opening multiple new lines of credit. If you are planning on taking out a car loan, give it some time before opening another line of credit elsewhere.
What Credit Bureau Do Car Loans Use

How to Apply for a Car Loan

Now you should have a better understanding of how a car loan will impact your credit. If you’re ready to finance a car, follow these steps to apply for a car loan from LoanCenter:

  1. Get pre-qualified. It only takes a few minutes to get pre-qualified for an auto loan. All you need to do is fill out the short form on our website. Applying for pre-qualification will not impact your credit.
  2. Choose your loan. It’s your loan, so you should choose the loan structure that best suits your needs. Review your options and make a selection. You can always change your loan structure later on in the process. 
  3. Add additional coverage. You have the option of adding extra protection such as a GAP waiver, Powertrain Coverage, or Advantage Coverage to your loan.
  4. Find a vehicle. Now the fun begins. Browse our online inventory to see vehicles that you are pre-qualified for based on your loan selection.
  5. Get your car. Once you find a car, download or print your pre-qualification letter. Then, head to the dealership to complete the transaction so you can drive home in your new car.

You’re just a handful of steps away from getting the money you need to buy a new or used car. Start the auto loan application process today!