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Get small auto loan just to build credit?

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maddox74
Established Member

Get small auto loan just to build credit?

So I've got a pretty decent FICO and credit history, however there are 2 aspects that I feel are lacking: I've never had an auto loan and never had a mortgage.  

 

For a quick credit overview, I've currently got a 760 EQ FICO (probably slightly less on the other CRA's), 3 credit cards from around 2008 with around $14k in credit limits, and a small ~$2k student loan (around $50/month payment).  I'm currently in the middle of an app spree where I am going to be getting the following (in order):

 

-Penfed Cash Rewards Card (already conditionally approved)

-Possibly Penfed LOC

-NFCU goREWARDS card

-Navcheck LOC

-US Bank Premier LOC (pretty confident in this, as I"ve got an long history with US Bank)

 

I'm applying for all of these LOC's because they are going to be very useful for short term cash business transactions for me, that's why I'm applying for so many.

 

Anywho, the real question now.  I own my car free and clear, and the car probably books for around $10k (though it really is a $30k modified car). My question is, should I apply for something like a $1000 auto loan from Penfed or possibly NFCU?  If I did, I would likely just put that money into an account and set up autopay to pay the minimum every month (I keep seeing some really good auto loan promotional emails from Penfed and NFCU, with rates from 1-3%, and I don't mind paying that small of a precentage on a small principle, if it is going to be beneficial for my credit building). 

 

My goals with the potential auto loan is:

 

1. Diversify my credit history to include an auto loan.

2. Get more positive payment history.

3. Develop an relationship with either Penfed or NFCU for easier approval with a potential future real auto loan or mortgage.

 

The potential downside is that the minimum payment will factor into my monthly payment obligations for future home/auto/card applications, though that should be minimal with such a low principal and a long term.

 

Considering the above, autoloan: yea or nay??

Message 1 of 5
4 REPLIES 4
llecs
Moderator Emeritus

Re: Get small auto loan just to build credit?

I wouldn't do it. #3 aside since YMMV by lender, the car loan would not help your mix of credit because you already have an installment loan. And you already have payment history showing with the 3 CCs from 2008 and the SL. Besides, FICO largely ignores the "OKs" on your report and zeros in on the lates (if any) and the recentness of those lates. In other words, I wouldn't add a car loan like that because of the potential negative impact to FICO for the new TL and impact to AAoA, and negative (albeit tiny) impact to DTI.

Message 2 of 5
maddox74
Established Member

Re: Get small auto loan just to build credit?

I guess my main goal is to make myself more attractive for loan types other than credit card/revolving loans.  More specifically, I'm looking to show better on an auto loan application (likely $20k+) and possible mortgage, independent of small sway in my FICO one way or the other (as FICO is just one consideration in auto and mortgage loans).  With that emphasized (and FICO de-emphasized), would you still recommend against it?

Message 3 of 5
llecs
Moderator Emeritus

Re: Get small auto loan just to build credit?

I personally wouldn't do it for reasons mentioned. IMO, I also wouldn't worry about making yourself more attractive to lenders because of the account types. When I applied for and received my first car loan not once did the lender(s) worry about whether or not I had a car note before. They didn't care provided my credit was in check and had the income to pay it. Likewise, I bought my first home about 3 years ago and the lender didn't look at me with a different eye because I didn't have any mortgages reporting. Make sense? It's a non-issue.

 

FICO aside, I would take a different approach: I'd argue that some lenders would frown on seeing smaller loans. It might call into question cashflow and income if a $1k loan was needed. Also if you add a car just for the purposes of credit, you then have to title it, pay taxes, insure it, etc. and that'll cost quite a bit. Now if you needed this car then that's different, but I personally wouldn't finance any of it. My 2 cents.

Message 4 of 5
maddox74
Established Member

Re: Get small auto loan just to build credit?

Thanks for the advice.  BTW, I already own the car outright and don't need the money, was just thinking of taking out a $1k note on it.

Message 5 of 5
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