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Can Buying a Car Improve My Credit Score?

How a Car Loan Can Impact Credit

Have you ever wondered if buying a car can improve your credit score? Since cars are quite valuable and are a necessary commodity for the majority of Americans, you will likely think of this question in the near future if you haven’t done so already. Ultimately, the way your credit is impacted is up to you. What does this mean? Keep reading to learn more.

[ READ MORE: What is the 20/4/10 Budget Rule for Buying a Car? ]

How Paying Loans on Time is Beneficial for Credit

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No matter if you have good or bad credit, large purchases in general can leave a significant impact on your credit. Whether this change is positive or negative depends on how you handle the loan.

When taking on a car loan, you are adding a significant amount of debt. Since debt is being taken on, you may notice a drop in a few points at first. Don’t feel discouraged by this, however, as this is normal. Note that credit is determined by your purchase history and how well you are able to repay that debt. If you make every car payment on time, along with paying all your other bills on time, you can see significant improvements in your credit score. Granted, these improvements will take time and will not happen overnight. Stay on top of your payments every month and your credit can end up looking much better than before you accepted the loan.

Of course, you should also remember that taking on debt and not being able to repay it can negatively impact your credit. It’s very important that you take on debt responsibly and understand your budget prior to committing to the loan. Doing so will save you lots of money with late fees, credit score points, and hassle when you start applying for other loans in the future.

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