If you have decided on purchasing a new car, chances are you have contemplated the idea of making your purchase with financing.
Taking out any form of loan, whether an auto loan or even a personal loan, can help you build credit.
Can Auto Loans Increase Your Credit Score?
Your credit score consists of five main factors. When you finance a car, you are helping to build at least three of the five areas of your credit: Payment History, Credit Mix, and New Credit.
Although the exact details of how a credit score is calculated is a closely guarded secret, we do know what these five main influencing factors in a person’s credit score are:
Payment History: 35%
Credit Utilization: 30%
Credit History: 15%
Credit Mix: 10%
New Credit: 10%
If you make on-time payments on your auto loan, your Payment History category will surely help give your credit score a boost.
If you have taken out a new loan, no other factor will influence your credit score more than Payment History.
Be sure to make all of your car loan payments on time and in full in order to avoid damaging your credit.
Credit Mix and New Credit each make up 10 percent of your entire credit score.
Although they are not as large of an influencer as Payment History, they still carry weight.
Credit mix is the different types of credit you have available. The more diverse your lines of credit are, the higher this score will be.
By adding new installment credits, you are automatically improving your credit score.
New Credit is the category that’s aimed at seeing how often a consumer applies for lines of credit.
By applying for an auto loan, you are automatically “helping” this factor. ‘
How Fast Will an Auto Loan Raise My Credit Score?
An auto loan can take multiple years to pay back.
Ideally, with on-time payments, your credit score will continue to rise over the life of your auto loan.
Your credit score will not skyrocket in one single day.
It is also important to note that credit scores can drop as easily as they come up.
The best way of combating this is by making all of your auto loan payments on time and in full.
If you are looking to buy a new car but have less than perfect credit, CrediReady can help. Our nationwide network of trusted dealers and verified lenders work with buyers in all credit situations.
Take a moment to fill out our free no-obligation loan inquiry form and start shopping for your dream car today!