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. Your credit score is something you want to pay close attention to and it could be affected more easily than you think.
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. The good thing is that even though your car loan application gets forwarded to many lenders, major credit bureaus will all count as a single inquiry.
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. Depending on the price of the car and the loan amount, the fallen points may vary.
Payment history is one of the most significant factors that affect your credit score. By making timely payments, you can enhance your credit score. As you continue to make these payments, your credit score will increase steadily.
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. Your ability to manage a mix of various types of credits proves that you are creditworthy and will give your credit score a positive boost.
Although sometimes, your auto loan might be missing from your credit score due to the infancy of the loan. Another reason is if the three major credit reporting bureaus, Experian, TransUnion, and Equifax, haven’t yet updated the loan information on your credit score.