Should I get a car loan to "improve my credit score"

[Anonymous]

Hi,

I'll be buying a new car soon for which I have cash in the bank.

However I'm wondering whether applying for a loan and then paying it of in, say, 6-10 months (more or less, prior to hopefully getting a mortgage), would have a positive or a negative impact on my credit overall. I haven't taken out a car loan yet, but I currently have 1 "new account" open (credit card, balance transfer, which would also be paid off in full around the same time).

Also, I've noticed (using the simulator) that making smaller payments over a longer period has a better impact on credit score than just paying the cards off right now.

As the score climbs up, does it stay where it is when the cards are paid off or does it start declining in absence of regular payments?

It would be great if the score would dramatically climb upon payoff in full, indication of ability to pay bills is essentially the same in the end as if you make many smaller payments.

Many thanks,
skr

[fused]

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skr wrote:
Hi,

I'll be buying a new car soon for which I have cash in the bank.

However I'm wondering whether applying for a loan and then paying it of in, say, 6-10 months (more or less, prior to hopefully getting a mortgage), would have a positive or a negative impact on my credit overall. I haven't taken out a car loan yet, but I currently have 1 "new account" open (credit card, balance transfer, which would also be paid off in full around the same time).

Also, I've noticed (using the simulator) that making smaller payments over a longer period has a better impact on credit score than just paying the cards off right now.

As the score climbs up, does it stay where it is when the cards are paid off or does it start declining in absence of regular payments?

It would be great if the score would dramatically climb upon payoff in full, indication of ability to pay bills is essentially the same in the end as if you make many smaller payments.

Many thanks,
skr

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Hi! You're asking some great questions! Here is some good reading.

http://ficoforums.myfico.com/fico/board/message?board.id=ficoscoring&thread.id=2654

[Anonymous]

Hi, Thank you very much for the reply. I've found the thread on car loans but it talks more about the special auto FICO than the effect of auto loan on credit rating.

Tuscani mentions, "I personally would have made the payments over a longer period of time (six months at least). History is key for any TL.. but I feel Installment credit flects more against age.. and revolving against util."

But this is still very broad and I was hoping someone would have hands-on experience regarding the impact of a car loan on credit score (initially did it drop much, does a loan count as new account, etc), how long it took for the score to reach its pre-loan level if it does drop (and in general how many points per month can you see from distancing away from a new account), and how much of an effect on monthly or anual basis a car loan can have on the score.

Again many thanks,
skr

Message Edited by skr on 07-28-2007 05:34 PM

[Anonymous]

I just refinanced my car a couple of months ago and got credit score increases on all three reports - the highest being 40-something points.  EQ STILL hasn't reflected the old TL as being closed but the new one is reporting (so it looks as if I have two open auto loans) and I still got a 20-something point bump with EQ.  The inquiries to obtain the refi did not lower my scores by more than 5 points on either of the two reports that were pulled and the internet loan finding site pulled 2 reports back to back from the same CRA.

I realize that you are talking about a new loan but I hope my experience gives you a bit of an idea.  It all depends on what is currently on your credit reports as to what will happen to you - always remember that when taking advice on this or any other credit forum. 

Speaking from personal experience, my original car loan helped me tremendously.  My credit scores were floating around the pits of Hades when I first got it and now, a year after the loan and 4 months after beginning credit repair/building, they are 675-699-715.  If you have a thin credit file, don't have any old auto TL's on your credit report and aren't planning to purchase a home within the next few months - it will probably wouldn't be a bad idea and will benefit you well into the future.