Passing The Test: Improve Your Credit Score When Buying A New Car!
Have you ever wondered how a car loan might affect your credit score? We all know there are good kinds of debt; debt thats handled well, paid on time and generally considered positive when building your credit score/history, and then there are bad kinds of debt. An example of a good debt may be your mortgage on your home; even if you have already paid it off you want it to remain on your credit record as it reflects well on you it reflects a certain level of maturity in the willingness to invest in real estate and put down roots, and it also goes to show that you met the terms of your loan and made regular repayments that met or exceeded the terms of your contract. A bad debt then may be something like outstanding credit card debt; with astronomical interest rates and monthly minimum repayments totalling barely a fraction of the credit limit per month, outstanding credit card debt or poorly managed credit card debt can shoot your credit rating in the foot.
But what about a car loan; how does buying a new car on credit with or without a deposit affect your credit score?
A car loan is a completely unique kind of credit; just like a mortgage and credit card debt represent different kinds of credit and affect your credit score differently, so would a car loan have a unique impact on your overall credit rating.
Better than a credit card?
Applying for and getting approved for a credit card is relatively easy these days and, as such, isnt necessarily considered a valid measure of credit-worthiness when applying for larger loans, such as a home loan, later on in life. A car loan, however, is different a car loan is bit more difficult to procure and, as such, reflects better on your credit-worthiness later should you be taking out the vehicle loan in order to build up a good credit history for the future.
That being said: defaulting on a car loan will pull your credit rating down far more quickly and severely than only meeting the minimum monthly repayments on a credit card would so make sure youre ready to take that step before you do; look before you leap!
Have you found that a car loan has helped or hindered your credit rating/score?
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