Which is better - Another credit card or car loan?

[Tim_S]

Hoping someone can answer this question.  Which is better for rebuilding credit, another credit card, (I only have 2 right now) or a car loan?  I'm just trying to "play the game" by diversifying my credit profile.  I don't need another credit card but I also don't need a new car right now.  Any thoughts?

[myjourney]

It has more to do with the mix of credit than the number of each TL

So to summarize having 2 cards with either of the following: car, mortgage, SL is a better mix of credit than someone who only is covering one category with CC's 

However high  scores with long term history can be obtained in either scenario and since you don't need either .....do nothing 

[Anonymous]

---

@Tim_S wrote:

Hoping someone can answer this question.  Which is better for rebuilding credit, another credit card, (I only have 2 right now) or a car loan?  I'm just trying to "play the game" by diversifying my credit profile.  I don't need another credit card but I also don't need a new car right now.  Any thoughts?

---

There's no reason to view it as an either/or.  You would benefit in the mid to long term from adding both a third card as well as an installment loan.

As far as an installment loan goes, you should certainly not get a car loan -- since you have explained that you don't need one.  Buying a car is very costly and you should never make expensive purchases chiefly because you think they might help your credit score. 

You should only consider adding an installment loan if you do not have one.  That means you do not have a car loan or a student loan or a personal loan or a mortgage. 

If you do not have any of those, then you are right that adding an installment loan would help your credit profile in the mid to long term.  The best choice if that is your situation is to add a $500 Share Secure loan through a credit union like Alliant.  In a few weeks I will be posting a step-by-step set of instructions on how to do that.  Your best plan would be to sit tight until you see that post.  If you can't wait that long, then you can read up on it here:

http://ficoforums.myfico.com/t5/Understanding-FICO-Scoring/Should-I-get-an-installment-loan/td-p/438...

Bear in mind that adding a third credit card or an installment loan (for a person with no I-loans) will likely harm your credit score in the short term.  (Not certainly, but likely.)  This is because ALL new accounts have a negative impact on a number of scoring factors.  But after several months that will begin to shift and your score will be better than if you had never done it.

[takeshi74]

---

@Tim_S wrote:

Hoping someone can answer this question.  Which is better for rebuilding credit, another credit card, (I only have 2 right now) or a car loan?  I'm just trying to "play the game" by diversifying my credit profile.  I don't need another credit card but I also don't need a new car right now.  Any thoughts?

---

Neither is inherently better.  Don't just open an account for scoring purposes.  Consider your overall financial picture and needs.

For scoring purposes consider the standard factors:

http://www.myfico.com/crediteducation/whatsinyourscore.aspx

The impact of any new credit account isn't just a matter of the account itself but your credit profile as well.  We can't tell you that one or the other would be better for your scores.  We can, however, relay the general advice that at least 2-3 are suggested for scoring purposes so another card would probably help in the long run.  Don't just get an auto loan for scoring purposes.  If you're buying a car and need to finance it then certainly get one.

Any new account will drop your AAoA and you will incur a hard pull.  Impact from other factors will depend on the details of the new account and how it factors into your credit profile.  For a revolver like a credit card the revolving utilization (balance/limit) has an impact on Amounts Owed.  For an installment the balance/loan ratio has an impact on Amounts Owed.  However, a high balance/loan ratio doesn't have anywhere near the same impact as high revolving utilization.

Do you have any open installments?  If you do, you won't see as much benefit to Credit Mix.

I don't recommend it but if you do want to add an installment I'd suggest using the small share secured loan.  What I'd really suggest is educating yourself about how credit is assessed, reviewing your reports, identifying deficiencies and addressing the deficiencies starting with the factors with the biggest impact.  Worrying over a factor that typically has a 10% weight doesn't make much sense if you have items impacting, say for example, Payment History at 35% and or Amounts Owed at 30%.

Also, there's nothing wrong with trying to make the most of your credit profile but don't rely on quick and easy fixes to build your credit.  It's a long, slow process.  Many factors just require time and responsible usage to build.

[Anonymous]

---

@Tim_S wrote:

Hoping someone can answer this question.  Which is better for rebuilding credit, another credit card, (I only have 2 right now) or a car loan?  I'm just trying to "play the game" by diversifying my credit profile.  I don't need another credit card but I also don't need a new car right now.  Any thoughts?

---

If your GOAL is only to

"play the game" by diversifying my credit profile"

AND

You..."don't need another credit card but I also don't need a new car right now."

Then taking out a secured loan from a CU would be the best move IMO....

Again being that

there is really NO NEED for a CC nor a car loan but the purpose is to 'play the game'

Then adding a TL that will double as 

1) A TL but

2) A boost in credit 'mix' being an installment loan vs another revolver

(Remember a car loan isn't the ONLY installment loan...a secured loan works, just the same)

3) Again sense a loan isn't 'needed'

Why not slap $500 into a saving account then 'borrow' it and 'pay' it back

on paper or CRB it's a 'loan'...it reports as a 'loan' it's a loan

the cost are laughable, for what you get (2-3% normally)

@Ex: a $500 secured loan @ 2% = $21.27 for a total Cost of $10.48 for the 2 year period

Remember even AFTER the loan is paid off, the 'juice' of having had the acount last 10 more years

For convenience sake you could add $20 to the account for the secured funds are being held (most release funds as the principal is paid down)

set up auto pay so as the payments are made to loan can pay back 'itself' with additional contributions from you and let her run (there some slick pay down methods on the board you can find but it again depends on how far in advance the vendor accepts prepayments but not required)....

Bottom line the only 'cost' is $10.48 to prop up a credit file that may pay divends for over a decade w/o risk or any real cost

plus the boost for credit mixture...for something that seems silly is absolutely worth it and hands down a next step in playing the 'game'.

Better yet take the 'proceeds' of the $500 'non-loan' to open a 3rd CC (if you need to go secured) and only use it to make the small secured loan paymenyt of $21.27 thus reporting a slant util/ration and of an on-time payment but noe a 3rd CC and 1 install loan ..which is a beautiful full file 12 months showing 48 payments

(36 revolving on-time payments w/ great debt/ratios and 12 on-time installment payments) would be looked upon favorably no matter what...that's 'playing the game'

[Grafton88]

Well you can't drive a credit card.

But seriously if you don't need a car don't get one.  Like others have said a secured loan from a CU will do you fine for a credit mix.  

I have one from my CU.  They took $500 from my savings for collateral.  They gave me a one year term.  They loan me that amount and put it immediately in my checking account.  The interest rate is 2.2%.  I got the loan in January.  I have paid off 80%.  That money, minus a small amount for interest, is directly deposited back into my savings.  I don't have Autopay.  My next payment in in October.  

It does feel like you are playing with Monopoly money but it is good for a credit mix.  I also look at it as building good will with my CU so later this year when I do want a car loan they will take my good payment history into account.