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Will car loan boost my credit?

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Valued Member

Will car loan boost my credit?

Thinking to purchase a car. Currently I have only 2 accounts in my account mix (credit cards and mortgage).

Will getting approved for a car loan boost my score?

 

Thanks

8/2017 Experian 684 | 11/2017 Transunion 640 | 10/25/2018 Experian 784, Transunion 711, Equifax 707 | 11/1/2018 Experian 797, Transunion 709, Equifax 709
Message 1 of 6
5 REPLIES 5
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Valued Contributor

Re: Will car loan boost my credit?

The short answer is no.

 

Ultimately, what a person needs to improve their FICO scores and build credit are three open credit cards (secured or unsecured) in good standing and one open installment loan in good standing such as a car, home, student, personal, share secured, or credit building loan. This combination is what the myFICO score theorists here have determined is what you need for optimal credit building and FICO score. You can have more CCs and more installment loans, however, this will not increase your FICO scores.

Next, (this is only important if you are attempting to purchase a large ticket item like a home or car) is paying in full all of the credit card balances each month, before the posting date, except one. This is called the All Zero Except One (AZEO) method. The one credit card you allow to post a balance needs to be less than 8.9% of the credit limit of the card. So using one card each month to buy lunch, letting it report and then paying in full will maximize FICO scoring. Keeping your utilization of your cards below 28.9% both individually and collectively will prevent you from incurring a FICO scoring penalty.

An installment loan will have its greatest impact on your FICO score when the amount owed is at 8.9% or less of the original amount owed which is usually in the final months before the loan is paid in full. If you don't have an installment loan you can check into Self Lender or a Share Secured Loan at a Credit Union.

Keep in mind, building credit is a marathon, not a sprint. It involves demonstrating to a potential creditor that you can handle credit responsibly. If you have open, active credit accounts that are being paid on time and pay all of your bills on time every time, apply for credit only when you actually need it and use credit cards sparingly maintaining low credit utilization, then you’re going to earn and maintain great credit scores. It would be impossible for you not to do so. This is the fastest way you can build good, solid credit.

















Your FICO credit scores are not just numbers, it’s a skill.

Message 2 of 6
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New Contributor

Re: Will car loan boost my credit?

An auto loan won't boost your score per se, but the successful management of an auto loan will demonstrate your creditworthiness. It will also make it easier for you to finance a car in the future. A couple of years ago, I needed a car. I agreed to pay cash for one car earlier in the week. I then test drove another vehicle at a local dealership. I applied for a loan on that vehicle with the expectation that I would be declined. After I was approved, I told myself that it would help my credit score. It did not improve my score, and I found myself owning two cars. I ended up selling the vehicle that was not financed because I did not drive it regularly.

25 years old

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Lease - Audi Financial Services - $47,148 cur. balance, $55,063 orig. balance, buy rate money factor, MSRP $83,365
Auto Loan - orig. $20,617, paid/closed
Installment - FNCU - Secured $1500 paid/closed
Installment - City National New Jersey (Self Lender) - Secured orig. $1000, paid/closed
Installment - Lead Bank (Self Lender) - Secured orig. $545, cur. $370
Equifax - 729
TransUnion - 740
Experian - 752
Message 3 of 6
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Valued Contributor

Re: Will car loan boost my credit?

It really makes no sense to go into debt to try to boost your credit score, don't spend money (interest) in an attempt to boost it.  That's wasteful and putting your economic well being in jeopardy.  Buying a second, uneeded vehicle, thinking it would boost your score is wasteful to the max.  DON'T BECOME A SLAVE TO YOUR FICO SCORE.

Message 4 of 6
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Valued Member

Re: Will car loan boost my credit?


@Watchmann wrote:

It really makes no sense to go into debt to try to boost your credit score, don't spend money (interest) in an attempt to boost it.  That's wasteful and putting your economic well being in jeopardy.  Buying a second, uneeded vehicle, thinking it would boost your score is wasteful to the max.  DON'T BECOME A SLAVE TO YOUR FICO SCORE.


I didn't say it's not needed. I do need a car. Just unsure if to get an older cheaper one to newer one with an auto loan.

I thought it might improve it in terms of account mix.

 

Thanks

8/2017 Experian 684 | 11/2017 Transunion 640 | 10/25/2018 Experian 784, Transunion 711, Equifax 707 | 11/1/2018 Experian 797, Transunion 709, Equifax 709
Message 5 of 6
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Frequent Contributor

Re: Will car loan boost my credit?

Having an installment loan will definitely help your scores. I gain a nice bump when I opened an auto loan last year.

 

Your issue is you already have an installment loan with your mortgage, so an auto loan isn't really going to help your scores.  Though having auto loans on your credit report with no negatives will make you more credit worthy for the next time you try for an auto loan as many places use an auto enhanced (or past auto loan emphasized) scoring model.  So unless you really want a vehicle that requires you to get a loan, I wouldn't do it.  The interest is just wasted money.  I'd rather be debt free than maximize my credit scores.

 

Current FICO8: EQ:777, TU:754, EX:761 | 2x 30 day lates 4.5-6yrs ago
AAoA: 10 years; AAoOA: 13 months; Credit Length: 21 years
INQ Eq: 3 / Tu: 5 (4 for auto) / Ex: 9 (5 for auto)
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