Are you thinking of buying a used car? Can doing so help build your credit score? Perhaps.
When you take out a loan to help purchase a used car, two things can happen… First, there’s usually a “hard inquiry” added to your credit report. This could temporarily lower your credit score by a few points. Next, taking out the loan helps increase your credit history. If you don’t have late or missed payments, then this can help increase your score.
Credit Score Factors
What are some of the factors that influence your credit score? Obviously, there’s the most important: payment history. This is coupled with the length of credit history. The longer you keep a card, the better. Then there’s new credit as well as types of credit. And there’s a thing called “utilization ratio.” What’s that? It’s a way to compare your total outstanding balance to your total credit limit. Ideally, you want to borrow 20% or less of your total credit limit.
Now, as for car loans, these usually are added to a credit report as an “installment amount,” whereas you pay the same amount each month for a fixed amount of time. If you are able to pay your amount on time, each month, you can expect to improve your overall credit score because you’re showing that you can do what you’re supposed to do: pay in full, on time!
Keep this in mind: taking out a loan will most likely lower your credit score at first. But if you keep your monthly payments, then the loan should actually help improve your credit score over time. It’s a great long-term play.
443 Auto Sales of Lehighton, PA, sells used cars. 443 Auto Sales is a “buy here, pay here” place, and you can learn more about available financing, here. Want to see what vehicles are currently for sale? See this inventory link.