We’ve all worried about our credit score at one time or another. This number represents our credit worthiness with potential lending institutions, and everyone wants to have a high score.
Many people wonder: how fast does a car loan boost your credit score? Today, we will give you some helpful information on whether you can raise your credit score by taking out a car loan. And secondly, how much time you will need for this to happen. Let’s find out!
Is it true that a car loan increases your credit score?
A car loan can indeed boost your credit score. But it’s not immediate, and you’ll need time, patience, and some good advice to get it.
As soon as you get the car loan, the first thing that will happen is that your credit score will drop by 20 to 30 points. This is because you will be in debt with the money you get.
However, the moment you start paying back the money you borrowed from the financial institution, the situation will change immediately. Little by little, and following steps, your credit score will increase by between 50 and 70 points.
How is this score increase achieved? Simply by being punctual and doing things right, as we are about to tell you. But the most important thing to keep in mind is this: you need to choose a good car loan. Otherwise, you should budget for insurance. This way, you will be able to access the future credit score increase and save money.
Having a high credit score is essential to solving most things in life. Whether it is in your personal life or if you have a business, you may need a loan for certain things.
Therefore, having a credit score will allow you to choose which financial institution you want to be approved for a loan. People who have a low score may be able to access some low microloans. So how can you increase it?
How should you act to increase your credit score when repaying your car loan?
Increasing your credit score means only one thing: you are gaining confidence in the eyes of financial institutions that provide loans.
Therefore, it is logical that your credit score will increase when you give reasons to be trustworthy. So, it’s all about paying your car loan instalments on time.
And what else can you do? Follow the guidelines below!
- First of all, as we said, be utterly punctual in the monthly payments. It would help if you never let a fee fall behind, which would immediately lower your credit score.
- In addition, many experts recommend that you make your payments with a credit card because the card gives absolute assurance that no errors will occur in the timeliness of payment.
- But another important issue is never to exceed the card’s credit limit. We usually talk about not going over 30% of the card’s maximum credit limit because this could have a negative consequence and lower your credit score.
- Finally, it is advisable to make the car loan repayments monthly. Every week, the amount to be paid is smaller, and therefore the rise of the credit score will be slower.
In short, it is possible to raise your credit score if you take out a loan to buy a car. You have to know that it won’t happen instantly and that it is also in your best interest to consistently meet the deadlines with the entity that has given you the loan.