Will Getting an Auto Loan Improve My Credit Score?

Managing an auto loan responsibly can build credit.

Your FICO credit score is a number between 300 and 850 that helps lenders decide how risky it is to lend you money. Everything that is reported to credit bureaus, including auto loans, can improve or worsen your credit score, depending on how you handle it.

Effects

Immediate effects of the auto loan will include small penalties on your credit score for the credit inquiry and the new credit account, and a small increase in your credit score for more types of credit. Your credit score can improve over time if you make all your payments for the auto loan on time.

Time Frame

Shop for an auto loan during a short time frame to reduce the immediate penalty on your credit score for credit inquiries. If your inquiries are within 14 or 45 days of each other, depending on the FICO scoring model the lender uses, they will be counted as just one inquiry.

Considerations

If your lender has a system in place for setting up automatic payments on your auto loan, arrange to have your monthly payment automatically deducted from your checking account. Missing a payment on your auto loan can hurt your credit score.

References

• Bankrate: How Credit Scores Work, How a Score is Calculated