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How does a car loan boost your credit score?

How does a car loan boost your credit score?

Can a car loan boost your credit

Most of us are not able to waltz into a car dealership and pay cash or write a check for the full amount of a vehicle. For this reason, dealerships began offering financing. Over the years, financing, or a vehicle loan, have become increasingly difficult to obtain. There are either more loopholes or fewer vendors willing to loan money. The lack of accessibility can make one wonder whether or not can a car loan boost your credit?

The short answer, yes, if paid on time.

Any outstanding loan where you have made payments regularly and on time can only help your credit score. So, for example, that 5-year auto loan on your dream car can boost your score if you don’t miss any payments.

The actual act of taking out an auto loan may temporarily drop your credit score until it is repair, or you begin making regular payments. Paying back an auto loan completely is a great way to build credit, patch poor credit and cement good credit. On the other hand, skipping payments, even if it’s just once, can have extreme implications on your score that you’ve been working so diligently to build.

History of good, consistent payments will show other lenders that you can be trusted and you have the abilities to make payments on time. In the long run, this could lead to other lenders confidence in you repaying larger loans, such as a home loan or an education loan.

If you don’t make any payments at all for a significant amount of time, your loan will be considered defaulted. Defaulting on an auto loan will basically shoot any chance you had at having a redeeming credit score in the foot. If you need assistance with financing or your specific auto loan, our finance experts would love to work with you and figure out a solution.