{"id":35603,"date":"2022-11-18T02:37:09","date_gmt":"2022-11-18T10:37:09","guid":{"rendered":"https:\/\/financer.com\/?post_type=wiki&p=35603"},"modified":"2024-12-11T19:26:09","modified_gmt":"2024-12-12T03:26:09","slug":"car-loan-raise-credit-score","status":"publish","type":"wiki","link":"https:\/\/financer.com\/loans\/articles\/car-loan-raise-credit-score\/","title":{"rendered":"How Fast Will a Car Loan Raise My Credit Score?"},"content":{"rendered":"\n
Taking out an auto loan can raise your credit score. However, how fast a new car loan raises your credit score depends on the status of your credit report. <\/p>\n\n\n\n
Applying for a new car loan will ding your credit score temporarily. However, you can offset this initial impact by making regular timely payments. <\/p>\n\n\n\n
Here are three ways a new car loan can affect your credit score negatively:\u00a0<\/p>\n\n\n\n
The immediate effect of applying for a car loan is a temporal drop in your credit score<\/a>. Applying for a new loan or credit card often results in a hard pull on your credit which impacts your score negatively. <\/p>\n\n\n\n How negatively a new car loan impacts your credit will depend on your credit history<\/a>.<\/p>\n\n\n If you have a long and good credit history, the drop may not be more than 5 points. However, you can experience as high as a 15-point drop if you have a shorter and less stellar credit history.\u00a0\u00a0<\/p><\/div>\n\n\n To alleviate the impact of a hard pull on your credit score, try to include all inquiries within two weeks and credit agencies will treat your multiple inquiries within that period as a single inquiry.\u00a0<\/p>\n\n\n\n So shop around for the best rates you can find and make all your applications within a short period of time. If you have bad credit, then you may want to consider the best car loans for bad credit<\/a>.<\/p>\n\n\n\n A new car loan decreases the average age of your credit accounts. This is because adding a new loan to your older accounts will lower the average age of your credit accounts. <\/p>\n\n\n\n However, this disadvantage becomes an advantage over time because you are aging that account with each month you hold it.<\/p>\n\n\n\n A new car loan increases the total amount you owe. This can have a negative effect on your credit score because amounts owed are one of the key factors used in FICO score estimations (it accounts for 30% of your FICO score). <\/p>\n\n\n\n Again, this initial disadvantage becomes an advantage if you make regular timely payments.\u00a0<\/p>\n\n\n\n Although a new car loan affects your credit at the onset, it can improve your credit score over time by diversifying your credit mix and improving your payment history if you make regular timely payments.\u00a0<\/p>\n\n\n\n Payment history is the most important consideration in FICO<\/a> score estimations. It accounts for 35% of the scoring model used by FICO. <\/p>\n\n\n\n This means that making regular timely payments on your car loan will have the biggest impact on your credit-building effort.\u00a0<\/p>\n\n\n If you maintain a record of consistent timely payments, you will see your credit score rise over time. On the flip side, late or missed payments will have a negative impact on your credit score.\u00a0<\/p><\/div>\n\n\n A new car loan can improve your credit mix especially if you have never had a car loan before or some other type of installment loan<\/a> (like a mortgage). <\/p>\n\n\n\n For example, if you have only used credit cards, adding a car loan will enhance your credit mix.\u00a0<\/p>\n\n\n\n Since credit mix is part of the scoring formula used for estimating credit scores, an improved credit mix will impact your score positively. <\/p>\n\n\n\n A good credit mix consists of different types of debt and proves that you can responsibly manage multiple payments at the same time.\u00a0<\/p>\n\n\n\n As you are paying off your car loan, you are not only showing that you have a good credit mix but you are also showing that you can handle the credit mix by making regular timely payments on the different loans you have.\u00a0<\/p>\n\n\n A car loan will not have a positive impact on your credit score if you are doing negative things with credit cards or other loans that you might have.<\/p><\/div>\n\n\n\t\tLowers the average age of accounts<\/h3>\n\n\n\n
Increasing amounts owed<\/h3>\n\n\n\n
How an Auto Loan Can Improve Your Credit<\/strong><\/h2>\n\n\n\n
A better payment history if you pay your loan on time<\/h3>\n\n\n\n
An improved credit mix<\/h3>\n\n\n\n