Those that live in the city can attest that public transportation is a necessity. However, owning your own vehicle offers a convenience that many people just can't pass up. The luxury of owning a car is not cheap. Of course, that convenience comes with a cost. In 2016, the average new car price was over $33,000. An expense affordable by most only with the assistance of a car loan.
Regardless of what credit type you are, good or bad, you should understand how taking out a car loan will impact your credit.
What sort of impact will auto loans have on credit?
Utilizing an auto loan will affect your credit in a couple of ways. It can either increase, lower or have no impact at all on your credit. When you apply for a car loan, you increase the amount of credit you use which will increase your credit score prior to making your first payments. When you begin making your payments you are going to increase your credit utilization which lowers your credit score until the loan is paid-off or when the balance become 30% or less of the original loan amount.
Although utilizing an auto loan will lower your credit score, this loan is also dependent on what other loans you have, how much debt you encompass, if you have credit cards that are maxed out and/or the amount of other credit inquiries you have within the last two years.
What should I do for preparing to counteract those implications?
The best thing to do is to plan ahead. For example, if you are going to be in the market for a new home within one year after making a new car purchase, wait until the home purchase is complete before buying that car. Most important reason being is that you don't want to have hurt your chances of buying a home as a result of too many inquiries in that time frame and/or the impact of the lower score from applying for your car loan.
Also, pay off as much of your revolving debt and hold off any buying any big ticket items shortly after purchasing that car.
Make your payments in full and on time every month!
Making regular payments on time usually helps your credit score rise. The quicker you pay down your auto loan the faster you reduce your credit utilization which will increase your credit score.
-Maximizing Your Borrowing Power With a Strong Credit Score
-Tips For First Time Borrowers
-Getting Approved for Favorable Bad Credit Loans
-Are Online Loans Safe?
-Advantages of Online Loans
-Understanding Interest Rates
-Impact of Defaulting
-Unsecured vs. Secured Loans
-Tips For Reducing Common Types of Debt
-Advantages of Personal Loans
-Loan Aspects to Avoid