While it’s not recommended to buy a car or home JUST to improve your credit, these types of installment loans can help you build your credit.
As we’ve discussed credit score before, the types of credit (revolving vs. installment) contribute to your FICO score. And if you don’t have too many other installment loans, a new car can in fact help you build credit. Keep in mind that this can have a positive effect only if you make your payments on time.
Another way buying a new car may improve your credit is if you don’t have much credit history. Folks establishing credit may find an auto loan to be a great opportunity to keep an account in “good standing.” If this is your situation, you may pay a higher interest rate since new borrowers are seen as higher risk.
If you do decide to go down this road, remember it may take three to six months for your credit score to change.
Also, be careful that the loan doesn’t go underwater. This happens when you owe more than your car is worth. Getting into an upside down situation could negatively impact your credit. Therefore, it’s crucial to be patient and shop around for the right car and loan.
If you have more questions about your options, please give us a call at (336) 821-0000.