How much does a small car loan affect Credit?

[Anonymous]

So I'm in a bit of a tricky situation. I need to buy a new car because my current one is on the fritz and will need the whole engine rebuilt so I'm going to sell it as is and get a new car. I will need to get a small loan in order to cover the difference between the amount I sell my car for and the new one, so maybe $3-4000.

The problem is that my fiancee and I are going to also start looking at applying for a home loan to buy our first house and I want my credit score to be as good as it get can be for that.

My question is, if I get a small loan to get a new car, probably around $3-4000 how much will that impact my credit score?

Thanks!

[Anonymous]

Welcome to the forums. I don't know how much you are looking at as far as total purchase price but if you are looking at relatively cheap cars then you may run into an issue with getting the financing. Banks have limits on the age and mileage of vehicles that they will finance.

As to the impact of the loan it will be dependent on what's currently in your credit report. If you have several established accounts the impact will be minimal. If you have no previous installment accounts then you may even get a small bump. If your file is relatively new or thin then you may see a decrease. You also need to understand that any auto payment is going to have an effect on your debt to income when you go to apply for a mortgage. So it will lower what you are able to qualify for.

Now none of these may be valid concerns if your income is high and your credit profile is excellent. But depending on when you want the home loan you may want to just consider paying cash for something that will get you through and buying the new vehicle after the mortgage is in place.

[Dustink]

Generally you don't want to do anything credit wise before a home purchase.

New accounts are bad. They lower your AAoA and raise your DTI.

The car payment may prevent you from getting a large enough loan for the house.

House then car is the way to go.

If you are buying soon, you could rent a car until after you close on the house.