Getting an Auto Loan to Improve Credit?

[Anonymous]

I currently have a pretty thin credit file. I am 2 months short of having a 3 year history and @ 1 year 3 months AAoA right now. I have 5 credit cards and 3 of them opened in the last year. I am gonna get a new car soon and I will have the cash to pay in full. But I am thinking about taking out about $8000 to $10000 just so I have an auto loan in my credit file. Do you guys think this will help me in the long run? Or I should just garden my 5 credit cards now?

[guydiver]

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@Anonymous wrote:

I currently have a pretty thin credit file@. I am 2 months short of having a 3 year history and @ 1 year 3 months AAoA right now. I have 5 credit cards and 3 of them opened in the last year. I am gonna get a new car soon and I will have the cash to pay in full. But I am thinking about taking out about $8000 to $10000 just so I have an auto loan in my credit file. Do you guys think this will help me in the long run? Or I should just garden my 5 credit cards now?

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Get the loan. It will help your account mix, and it will give you an auto enhanced Fico, maybe you will need to finance in the future and can get more favorable terms.  Just get the best interest rate you can with your big down payment, finance for short term and it should help you build you profile. 

[pizzadude]

I agree that it probably is a good idea to get a small loan to help your credit mix and to position you for future installment loans.  

And you can always pay it off early if you get tired of paying interest.

[mtrsprt]

I thought that too.  Went out and got a small car loan for $10K to add to my credit mix, and build good account history,  Took a 40 point hit on my scores when it reported.  In 2 months, it has only came back up 3 points.  For someone like me, who has only been rebuilding since last July, it was a shock to say the least.   At least it shows more responsibility adn over time will help me in more ways than just a score.  I think most of the hit came from added inquiries, a big jump in debt, and another new credit card recieved that same month.  My AAoA dropped to a mere 1 year 3 months after that from 3 years 8 months.

[pizzadude]

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@mtrsprt wrote:

I thought that too.  Went out and got a small car loan for $10K to add to my credit mix, and build good account history,  Took a 40 point hit on my scores when it reported.  In 2 months, it has only came back up 3 points.  For someone like me, who has only been rebuilding since last July, it was a shock to say the least.   At least it shows more responsibility adn over time will help me in more ways than just a score.  I think most of the hit came from added inquiries, a big jump in debt, and another new credit card recieved that same month.  My AAoA dropped to a mere 1 year 3 months after that from 3 years 8 months.

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Yes, in your case having a thin file, then adding two new accounts, auto and CC, dropped your AAoA. 

But having a mix of credit, both installment and revolving, is good for your FICO score.

[mtrsprt]

I just think it's easier watching a tortoise run a marathon, than keeping a watch on my score every few weeks or less LOL....... 

[pizzadude]

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@mtrsprt wrote:

I just think it's easier watching a tortoise run a marathon, than keeping a watch on my score every few weeks or less LOL....... 

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yep, it really is a marathon, certainly not a sprint.     Having good credit is a journey;  not a destination.