A complex question about auto loan and its influence to my credit score

[Anonymous]

Hi everyone,

I am new in the US and my credit score will be formed in 3 months. I have a secured CC, usual CC and a couple of authorized CC which I manage well and according to creditcarma my score will be around 710-720.

My ultimate goal is get a mortgage in 5 years.

I have money to buy a used car, but I can wait for 3 months and apply for an auto loan as well. Which decision is better? Will payed off auto loan be usefull for my credit score in a couple of years or it's enough just to manage my credit cards accounts wisely?

And one more question - which car will lost its price less in 6-12 months? 

Thanks for any help.

[Anonymous]

How long will you need the car for?

If I am reading it right you only need it for 6-12 months? If so, just rent one.

[Anonymous]

I am a contractor and my contract will expire in 6 months or 12 months. So if I find another job in the current city or nearby areas I'll keep a car. But if I have to move to another coast I want to have an opportunity to sell it and don't lost much money. 

[Anonymous]

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@Anonymous wrote:

I am a contractor and my contract will expire in 6 months or 12 months. So if I find another job in the current city or nearby areas I'll keep a car. But if I have to move to another coast I want to have an opportunity to sell it and don't lost much money. 

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I think your best bet would be finding a monthly rental at a good rate. 

[Anonymous]

I believe if you buy a relatively good used vehicle, like a late model used mid-size or compact then you should have no problem reselling it for about what you buy in a year. The problem is likely to be in securing the auto loan with relatively new credit and employment history. But a down payment in the 20 -30% range will help that. And the installment loan history will help when you go for a mortgage eventually. Assuming of course that there are no late payments on anything.

[sccredit]

Just an FYI the optimal payment history on an installment loan for credit scoring is 36 months, anything below that will have negligible impact on your score, aside from a credit mix bump.

[OptimalFICO]

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@Anonymous wrote:

I believe if you buy a relatively good used vehicle, like a late model used mid-size or compact then you should have no problem reselling it for about what you buy in a year. The problem is likely to be in securing the auto loan with relatively new credit and employment history. But a down payment in the 20 -30% range will help that. And the installment loan history will help when you go for a mortgage eventually. Assuming of course that there are no late payments on anything.

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I agree with HoldingOntoHope. An auto loan is considered an installment loan and installment loan history will help raise your FICO scores since the FICO algorithm rewards your use of a mix of credit types: (1) mortgage; (2) installment such as car loan or personal loan; and (3) credit cards. BTW Honda and Toyota maintain their value really well (e.g., Toyota Camry, Corolla or Honda Civic, Accord).

You may also want to check out "Credit Builder Loans" which would also be considered an installment loan. These are often found a credit unions. Link to the following for more info: http://ficoforums.myfico.com/t5/Rebuilding-Your-Credit/Credit-Builder-Information/td-p/1550002

A word of caution, don't borrow money from a "finance company" (typically subprime companies/lenders with "finance" in their name. These types of accounts will hurt your FICO score for as long as the tradeline appears on your credit reports. Also, don't buy your "credit scores," you want to buy your "FICO Scores" which is the variation of credit scores that most lenders typically use. A good rule of thumb is to buy your scores and reports only on MyFICO to make sure you're getting the real deal.

Best wishes!

[Anonymous]

Thank you very much for answers!

i checked Avis and Enterprise today and they want roughly 1000$ per month for rental (including tax and insurance). I think it's better to buy something then just spend 6000 for 6 months...

Downpayment is not a problem, I can pay even 50%. So the optimal auto loan for is 36-months and optimal cars Toyota and Honda. Is it a good idea to visit a dealer and apply for loan their to Toyota/Honda financial services?

[Anonymous]

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@Anonymous wrote:

Thank you very much for answers!

i checked Avis and Enterprise today and they want roughly 1000$ per month for rental (including tax and insurance). I think it's better to buy something then just spend 6000 for 6 months...

Downpayment is not a problem, I can pay even 50%. So the optimal auto loan for is 36-months and optimal cars Toyota and Honda. Is it a good idea to visit a dealer and apply for loan their to Toyota/Honda financial services?

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Ouch, I have found the rentals for as low as a few hundred bucks per month.

But yes, if all you can find is $1000 per month rentals. It would be much better to buy.

Just find something that is at least a few years old but has low miles. 

The problem will be selling it after 6 months or so. If you buy from a dealership you are paying retail. You don't own a dealership so you can't sell it for retail. Even if the car has only lost a couple thousand in value, you can't sell it for only a couple thousand less. You will need to price it low enough that you can sell it quickly private party. Or take it to a dealership for a low cash offer.

Another option would be spending like $1500 on a cheap car off craigslist. Good chance that if maintained it won't lose any value and you can just sell for about what you paid.

No matter what you end up doing, be sure to negotiate well.

[Anonymous]

And what about dealership finance services for a new car like 0 apr fpr 36 months? What level of credit score should I have to be approved for it? I have a job but employment history for the current employer is about 2 months only (