Building good credit takes time, but the rewards are worth the effort. Qualifying for the best interest rates and terms are side effects of good credit. To build credit, you must demonstrate to creditors that you are a responsible borrower. Buying a new car can help boost your credit score as long as you manage your loan correctly.
Credit Inquiries
When shopping for a new loan, your credit score is pulled repeatedly. Generally, your credit score decreases with a new inquiry, but when shopping for a mortgage, car or student loan, inquiries have little impact on your credit score. The exception to this rule is when you shop for a loan over an extended time. Having your credit report pulled for one type of loan within a 45-day period ensures your score does not decrease each time your credit report is pulled. If you purchased a car after shopping for a loan within a short time frame, the inquiry had a minimal impact on your credit score.
Amounts Owed
One of the top three largest factors affecting your credit score is the amount of debt you owe. When you purchase a car, your debt is considered an added liability. Carrying balances on a long list of accounts can harm your credit score. Since your car loan is at its highest right when you purchase a new car, your score may suffer temporarily, but as you pay down the balance the negative impacts are lessened.
Payment History
The most important factor that influences your credit score is your payment history. When you obtain a new car loan, keeping your account in good standing is essential. Each month you make a payment on time, your credit rating improves. However, your payment isn't judged according to whether it is received by the lender's due date, but whether the payment is received within 30 days of the due date. Your credit score begins to drop once you are more than 30 days late on your car loan payment. The longer you make timely payments on your account, the more your score benefits.
Considerations
Buying a new car can be an exciting experience that brings many new financial considerations. As long as your car loan is affordable, you have the opportunity to improve your credit ranking through your installment loan. Keep a mix of revolving and installment credit accounts to maximize your credit improvements each month. Revolving credit includes credit and retail cards that report to the three major credit bureaus each month. Avoid obtaining new loans immediately after receiving a new car loan to avoid increasing your debt too much and harming your credit score.
0 comments:
Post a Comment