When you're driving away from the dealership in your brand-new car, you're probably not asking yourself, “Does buying a car help your credit score?” However, that's an important question to answer.
Top Ways Buying a Car Affects Your Credit
Buying a car has the potential to increase your credit score, but it can also go the other way and drop. How are you to know? It all depends upon when and how you make the payments for your car loan.
When you apply for a car loan, the first course of action your account goes through is a hard inquiry. Unfortunately, a hard inquiry will lead to an automatic lowering of a few points of your credit score for a couple of months.
Once you buy a car and acquire a loan for it, your credit report will reflect the additional debt that will impact your credit score. As soon as the debt is accepted, you will see a drop in your credit score as your liabilities increase.
Making Timely Payments
Payment history is one of the most significant factors that affect your credit score. By making timely payments, you can enhance your credit score.
Managing Your Credit Mix
When you apply for a car loan, lenders can see a credit mix on your credit history. Your credit mix is the different sorts of credits you have, such as revolving credits, installment credits, and more.
What Is an Industry-Specific Score?
They provide you with Industry-Specific Scores that will help the lenders decide on the loan terms, such as the future installments and interest rates.
How To Make Sure Your Credit Is Ready to Buy a Car
Buying a car and taking on a car loan is a big financial responsibility, and you should have adequate preparations if you are planning on going along with the decision. Here are a few quick tips to help you get your credit ready to buy a car.
Check Your Credit Report and Scores
Although you might be able to get an auto loan with less than perfect credit scores, you might get charged higher interest rates. So, by checking up on your credit, you will know where you stand regarding auto financing.
Pay off Credit Card Debt The first order of business to improve your credit score is to repay your credit card debt, thus lowering your credit utilization ratio. The most optimal credit utilization lenders hope for is 30% or less.
Swipe up to Read More on Does Buying a Car Help Your Credit?