Applying for a car loan for the purpose of having an installment loan (auto) on my credit report

[Anonymous]

My current situation:

- I'm 23, FICO ~730

- Have 5 credit cards (all in good standing, always paid in full, total utilization typically 5-15%)

- Have 1 installment loan closed in 2012 (direct subsidized loan, so I did not pay any interest, and just paid the full amount at once when I graduated before interest started to accrue)

I'm considering purchasing a new car in the next year or two. Would it be beneficial to my credit report / score to get a car loan instead of paying for the car in cash?

I'm specifically concerned about buying a house 5-10 years down the road, and getting a good rate on a mortgage. I have the impression that not having installment loans on my report would prevent me from getting a good rate on that mortgage regardless of having a good credit card history.

Any thoughts / advice is much appreciated!

[Anonymous]

The consensus seems to be that an installment loan doesn't do much directly for your scores.  This has been my personal experience as well.

However, it can be beneficial in two indirect ways.  The first is by helping utilization, if revolving debt is moved to installment.  This can lead to a large score boost in some cases, for example when someone consolidates all their CC debt into an installment loan.

The second is the benefit that you get when your report is manually reviewed.

If you're looking for a huge score boost, you may not find it.  But it may benefit you in other ways, and may be very important for specific lenders who are looking at more than scores.

[bettercreditguy1]

I agree, while it may not directly effect your score, it will show a payment history for a lengthy period of time. This pattern may assist you when applying for a home mortage down the road or better your chances at a cli increase.

[GFer]

I wouldn't for that purpose. They don't add much in the way of points to your score, and they increase your overall used utility. Even though you never paid interest on the installment / student loan you had, it still counts! Just pay everything on time on don't get into debt and you'll be golden when you apply for your home!

[Revelate]

I don't know on that, installment loans are non-trivial and having them is nothing but goodness.

Personally with today's interest rates I'd never buy in cash, there's better things that can be done with the money even with what looks to be a bumpy ride economically this year but with interest rates at historic lows, and "smart" money betting that won't change in 2014, not sure what the attraction is paying cash.

Admittedly you could get a personal secured loan now (especially if you have the cash just laying around) and accomplish likely 90-95% of an auto-loans benefit from a FICO perspective.  Home underwriting they probably won't care one way or the other, but they might.  Also could sorta dummy it all, either by going with a lender that allows you to pay way in advance, or by putting down some loopy amount like 50% though that lowers the initial balance on the loan.  

Anyway lots of ways to skin the cat, with higher interest rates paying cash is likely a smart thing, but when my ugly as sin report is getting pre-approvals for absurdly low rates right now...