How Do Car Loans Affect Your Credit Score?

How Do Car Loans Affect Your Credit Score?

We all know there’s good and bad debt. Mortgages are sometimes referred to as “good” debt, while credit cards tend to be referred to as “bad” debt because of the high interest rates and large amount of fees attached.

But where do car loans come in?

Some people argue that since auto loans are backed by the value of the car and the interest rate is very low, it makes good financial cents (ha!) to buy them. Others say it’s better to buy a used vehicle.

Whichever opinion you side with, car loans are still considered consumer debt, but they’re in a category all their own. Here’s how car loans affect your credit score:

A New Mix of Credit on Your Report

Your overall credit score is made up of several different sections, and about 10% of your credit score reflects the type of credit you’ve utilized. For instance, credit cards represent one type of credit usage, car loans make up another portion and mortgages round out the bunch.

The overall goal is to mix up your credit with different types of loans, so you can increase your credit history and subsequently your credit score.

Having a car loan on your report shows a new mix of credit, and can help improve your overall credit report. Additionally, if you make payments om time it shows you’re less of a risk to loan officers and banks.

 

More at: http://blog.readyforzero.com/how-do-car-loans-affect-your-credit-score/