Will A Car Payment Affect My Credit Score? Johnson City Toyota

Will a Car Payment Affect My Credit Score?

Car loans are a very common financial option when you purchase a new car, and have some benefits. Even if you have enough saved in cash for a new or pre-owned car, a car loan will do more to help your credit score. Loans add to your credit mix, payment history, new credit, and credit utilization – all of which are factors used by FICO to calculate your credit score.

Building a Good Credit Score

Among the various factors that FICO uses, payment history is the most important. It accounts for 35% of the entire credit score. If you pay on time and consistently, it will have a big impact on your score, especially if you have a long history of paying off loans consistently. If you have a personal loan, an education loan, or a home loan that you’ve paid off, your credit score is probably pretty good.

Using a Good Credit Score

A good credit score can get you a lower interest rate on your next loan. A lower interest rate can save you money in the long run. The interest rate is determined by which band your credit score falls into.

If you’ve built a good credit score and need multiple loans, it’s recommended that you try not to take out more than two loans or credit sources at the same time. Every time new credit is taken out, it adds more debt to your account and your credit score will be hit by a few points.

If you take out more than one loan, you’ll be adding a much greater amount of debt to yourself, and this will reflect on your score. If you have a high enough credit score, you won’t have to worry about taking up two loans at the same time. You will earn back the lost score as you continue to make regular payments on both your loans.

Closing Out Your Car Loan Early

If you can close out your car loan early, your credit score will shoot up temporarily. However, if you don’t have any more debt or payments to make, you won’t be able to contribute to the payment history on your FICO score. This means that you won’t see consistent improvements in your credit score. Your score will remain stagnant until you take up new credit and begin paying it off, or use your credit card and regularly pay that off as well.

Missing Car Payments

If you do miss a car payment completely and are not able to pay the amount within 30 days of the missed payment date, the lender will have to report you to a credit bureau. You will not only lose points, but the negative report stay on your record for seven years after you missed the payment.

If you buy a Toyota, you’ll be able to get better loan options since this is one of the top selling and trusted brands in the country.