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The short answer to the question is yes. You can temporarily hurt your credit by car refinancing, but you can also expect it to bounce back not long after. The general perception about refinancing an auto loan is that it can help you save money in the long run, given that your monthly payments are low. However, sometimes it can take a toll on your credit score. Let’s discuss this a little more.

How Does It Hurt Your Credit?

A lender usually checks your credit whenever you apply for a loan. This means there’s a strict inquiry on your credit, which can result in a drop in your score. The after-effects of a hard inquiry are not unknown, and they can last for a good six months.

Moreover, refinancing is also known to hurt your credit as it reduces your accounts’ average age. This is usually because your old auto loan is paid off and is replaced by a new one. However, that’s not the only element that affects your score.

How Can You Prepare for an Auto Refinance?

Keep a Check on Your Credit Score

Keeping an eye on your score does not hurt your credit in any way. In fact, it helps you figure out where you stand. If it’s low, you may want to spend a few months trying to build it up before you apply for auto loans.

Fix Your Errors

The rule of thumb is never to throw your credit report away. Sure, it’s a lot of information to read, but only by doing so can you figure out what’s holding your score back. Is it due to late payments, or is it simply an error? The only way to know is to check your report now and then. Sometimes, there are errors that may keep your application from being accepted or approved at a good rate.

In the end, a car refinance does not hurt your credit permanently. If you’re still unsure of its implications, it’s important to keep track of everything that may be hurting your credit in the first place. The best way to do that is to check your credit reports instead of throwing them away.

In case you see any discrepancies in the score, it’s important to notify the authorities so it can be fixed. However, a bad score is not the end of the world, and there are many ways to deal with it.