Every credit-challenged buyer should most certainly research their options about what they can and cannot do while shopping for their next vehicle. Even though applying for an auto loan could put a dent on your credit score temporarily, paying it back on time, every single time, will more than offset it. Read on to know more about how a car loan will help your credit score.
We understand that you don’t want to think about the auto loan you just signed up for, or how it might affect your credit score when you’re rolling out of the car dealership’s parking lot. But if you’re not cautious, a couple of minute mistakes can make it hard for you to safeguard your other lines of credit.
How Does A Car Loan Actually Affect Credit?
There are two foreseeable effects of purchasing a new car loan on your credit:
1. It adds a hard inquiry to your credit report, which may temporarily trim a few points off of your credit score. Refinancing a car has a similar effect on your credit score.
2. If you pay on time, every single time, it will definitely have a positive impact and add to your credit history.
The credit score points you temporarily lose when you applied should be more than offset by the ones you gain from a history of on-time payments.
Auto Loans on Your Credit Report
It is very important to keep in mind that your auto loans will most likely impact your credit report and your credit score.
You may feel a little overwhelmed by the data when you first go through your credit reports. To check out your car financing, you might want to turn to the page on reports provided by each of the three major credit agencies – TransUnion, Experian, and Equifax. This list your car loan account. Take a look at the following two categories:
Say you’re always on time with your car payments. Your credit report will note that your car loan is ‘paid as agreed’ or ‘current’. Since we already know that payment history has the biggest effect on your credit scores, staying current on your payments could help your credit score considerably. In case there’s a lag in your payment for 30 or more days, you run the risk of having your car repossessed by your lender and tarnishing your credit.
Kinds of Account
An auto loan is usually registered as an installment account. Other kinds of installment accounts include mortgage loans and student loans; which are usually payments of the same amount, made for a set number of payments. Since a chunk of your credit score originates from ‘credit mix’, getting a car loan may help your credit profile, if you don’t already have an installment loan.
Ideally, if you’re successful in making all your auto loan payments on time, your credit reports will show that over a certain period of time. But in case there is an error, for instance, on an on-time payment which is posted as late; you must consider filing a dispute.
It is important to remember that you can get free copies of your credit reports every 12 months, in order to ensure that all your accounts are being reported correctly.
Drive down to The Car Factory today to buy your dream car and repair or establish your credit score in no time. Call (786) 406-6234 or visit CarFactory.com to schedule your test drive in our Miami or Hollywood locations today!
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