Roughly how long should I ideally wait to apply for a large car loan after increasing my credit card limit?

Question

Back in March, I elected to increase my existing line of credit limit up to $2,000, which came with a reduction in interest (from 12.5% to 8.5%). Now, I'm in line to buy a car that I really want, but I require a rather sizable loan - let's ballpark in the range of $45,000.

Of my payment history:

• I'm 100% on time and not delinquent in any payments
• I've maintained good credit practices (i.e. paying off the credit card every month at a minimum)
• I work in an industry that allows me to make car loan payments handily with some cash left over to save

The timing of the car suddenly being available for me to put a purchase towards threw a wrench into my plans, as I was planning for that to happen sometime in August, but instead it happened in April.

I'd like to maximize the possibility of my loan being very, very good, but a recent self-pull of my credit score showed less than 650 when it was in the neighborhood of 750 for the bump in credit limit.

Roughly how long should I wait after that credit limit increase to apply for the car loan?

Answer 1

First of all, let's clear up a couple of misconceptions. When you increase a credit line, your score generally should go up rather than down. There are only two reasons your credit score would decrease after increasing a line:

1. Your bank may have done a hard pull of your credit score to approve the increase. This generally should only affect your score 5-10 points and probably only for 2-3 months.
2. If you immediately spent more on your increased line your score could decrease, but as soon as you pay it off your score will shoot back up within 30 days.

So, if you didn't spend a lot of your new CC limit, then either something else caused your score to decrease, or it wasn't previously as high as you thought it was. (There's no way a line increase would drop your score 100 points.)

I would recommend some information gathering. Knowing the following things would be helpful:

1. What factors are actually bringing down your credit score?
2. What would your interest rate be if you financed the car today? You could contact a bank and the car manufacturer to see what they offer.
3. Assuming your credit score is being brought down by factors you could fix quickly (e.g. high utilization is an easy one to fix), then what would your interest rate be if your score were higher? You could ask the banks you contact to run some what-if scenarios for you.

Does the car happen to be a Tesla M3? If yes, based on the outcome of the info gathering, the only scenario where I would recommend even considering purchasing the car right now is if the interest rate would be low right now (let's say less than 4%) and you aren't going to be able to get it much lower in the near future. In the absence of that I would pass and keep your reservation for the future. That would give you time to build up a down payment and possibly increase your credit score to achieve a lower interest rate down the road.