Will My Credit Cards Affect My Ability to Get a Car Loan?

I received a reader question last week about how credit cards and available credit will affect her ability to get a favorable rate on a car loan. Now let’s look at her question: I am writing because I was curious what effect my credit cards will have on getting a car loan with a good…
Advertising Disclosure.

Advertiser Disclosure: Opinions, reviews, analyses & recommendations are the author’s alone. This article may contain links from our advertisers. For more information, please see our Advertising Policy.

The Military Wallet has partnered with CardRatings for our coverage of credit card products. The Military Wallet and CardRatings may receive a commission from card issuers. Some or all of the card offers that appear on The Military Wallet are from advertisers. Compensation may impact how and where card products appear, but does not affect our editors’ opinions or evaluations. The Military Wallet does not include all card companies or all available card offers.

I received a reader question last week about how credit cards and available credit will affect her ability to get a favorable rate on a car loan.

Now let’s look at her question:

I am writing because I was curious what effect my credit cards will have on getting a car loan with a good interest rate. I have 6 credit cards that total an available balance of $14,500. When I say available I mean just that, the balance on all the cards is zero and has been for about 6 months.

I was deployed to Iraq and decided to get out of debt first thing. Paid them all off in a matter of 5 months.

One of the cards is almost 7 years old, 3 of them are 5 years old and the other 2 are about 2 years old.

I was discussing this with someone and they mentioned that lenders may frown on me having that much available credit.

My income is quite low while I am home because I am also a college student therefore I can’t claim my GI Bill as income because it’s contingent on me attending school.

So I would say I gross about $16,000 a year while at home as far as what can be considered toward my income to debt ratio.

Will these cards hurt or help me and what is the best scenario if it is more beneficial to close the accounts, considering I want to buy a car within the next 6 months.



Hello K,

Thank you for contacting me, and thank you for your service to our country. And congrats on eliminating your debt, that puts you in a much better financial position to obtain favorable loan conditions!

To answer your questions I will also reference some articles I have previously written. The links are below so you can find more details.

With the information in the above articles, you should understand how your credit score is determined, how to improve it, and why canceling your cards may not be a good idea – particularly your older credit cards.

You should already have a high credit score. Your credit score is determined by your payment history (35%), amounts owed (30%), length of history (15%), new credit (10%), and type of credit (10%). You can reference the above articles for more information. Based on this formula, you should have a good score, so long as your payment history is good (ie you haven’t missed (m)any payments). Everything else is in your favor – you don’t owe any money, the length of your credit history is good, and you don’t have any new credit. I don’t know the type of credit you have, and some types are less favorable than others – for instance a payday loan is less favorable than a major credit card.

Don’t cancel your credit cards. Canceling your credit cards reduces the average age of credit, which can lower your score. A better alternative is to request that the credit card companies reduce your available credit on the cards you don’t use. If you feel like you don’t need a lot of available credit, reducing all but one card to a minimum level (probably $1,000) will reduce your amount of available credit and may make it easier for you to get a favorable loan rate.

Debt to income ratio. Your ability to borrow money is based on more than just your credit score. Lenders also consider your income, debt to income ratio, and other factors. Your credit limits don’t actually count toward your debt to income ratio because it is only available credit, not credit you are using. Your debt to income ratio is currently 0 because you have no debt. When you take on a loan, your debt to income ratio will change, but unless you get an expensive car, your debt to income ratio should be relatively low.

Loan rates vary. There are many factors that lenders use to determine the rates they will offer. Your credit score should be high, which is in your favor, and you can lower your available credit by reducing the limits on your credit cards. The biggest factor you have going against you is your low income. If you can demonstrate to your lender that you are living at home, have few expenses, and have sufficient income, you may be able to receive a good loan rate.

My advice: You have 6 months before you plan on buying a new car, so save up as much as you can right now, and put the money in a high yield savings account, where you can earn interest on your money while you wait.

I recommend doing your homework before buying a new car and before taking on a loan. Examine you needs now, and look ahead a few years – if you plan on getting married or starting a family in the near future you don’t want to buy an economy car now and need to trade it in in a few years if your needs change. Since your income is low, try finding a quality used vehicle that meets your needs, and consider buying a car that is closer to the entry level line than the luxury level line.

Then shop around for interest rates. Try your bank first (I currently use and recommend USAA, but go with whichever bank you are comfortable with). And don’t be afraid to check out dealer financing options. Many dealers are hurting in the current economy and may be able to give you a good deal.

I hope this information helps, K. Good luck in finding a good car at a good rate!

About Post Author

Get Instant Access
FREE Weekly Updates! Enter your information to join our mailing list.

Posted In:

Reader Interactions


    Leave A Comment:


    About the comments on this site:

    These responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser’s responsibility to ensure all posts and/or questions are answered.

  1. threadbndr (karla) says

    Shopping for credit is your best weapon in the fight for a new car (and believe me, it FEELS like a fight sometimes – the car dealer is NOT an allied force!)

    Have your finanacing in place – check your credit union too. USAA is also a good place to look.

    Read some articles and books on how to negotiate a car deal. You should consider the purchase price, finanacing and trade in/down payment negotiations are three seperate deals. Be prepared to walk away at any time – don’t fall in love with a specific car.

    Also consider a late model used car instead of a brand new one. The depreciation when you first drive a new car off the lot can but upwards of 30%!!!! Let somebody else take that hit. My first ‘new’ car was a voluntary repo – it had less than 10,000 miles on it. The soldier who owned it before me just got in over his head; too bad for him, but great for me.

    Good luck with the car, and thank you for your service

    Karla (Marine mom and MIL)

The Military Wallet is a property of Three Creeks Media. Neither The Military Wallet nor Three Creeks Media are associated with or endorsed by the U.S. Departments of Defense or Veterans Affairs. The content on The Military Wallet is produced by Three Creeks Media, its partners, affiliates and contractors, any opinions or statements on The Military Wallet should not be attributed to the Dept. of Veterans Affairs, the Dept. of Defense or any governmental entity. If you have questions about Veteran programs offered through or by the Dept. of Veterans Affairs, please visit their website at va.gov. The content offered on The Military Wallet is for general informational purposes only and may not be relevant to any consumer’s specific situation, this content should not be construed as legal or financial advice. If you have questions of a specific nature consider consulting a financial professional, accountant or attorney to discuss. References to third-party products, rates and offers may change without notice.

Advertising Notice: The Military Wallet and Three Creeks Media, its parent and affiliate companies, may receive compensation through advertising placements on The Military Wallet; For any rankings or lists on this site, The Military Wallet may receive compensation from the companies being ranked and this compensation may affect how, where and in what order products and companies appear in the rankings and lists. If a ranking or list has a company noted to be a “partner” the indicated company is a corporate affiliate of The Military Wallet. No tables, rankings or lists are fully comprehensive and do not include all companies or available products.

Editorial Disclosure: Editorial content on The Military Wallet may include opinions. Any opinions are those of the author alone, and not those of an advertiser to the site nor of  The Military Wallet.