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Home / Credit / Will Financing a Car Really Help Your Credit?


Financing a car can indeed help your credit score, provided that you make all of your monthly payments on time. Just how much it will boost your score is difficult to estimate, as it depends on your score at the time the vehicle is financed.

How Financing Helps

Your credit score is built based on several defined categories. A car loan will directly affect three of those categories:

  • Payment history.
  • Length of credit history.
  • Types of credit used.

Combined, those three categories account for 60 percent of your credit score. By addressing all three of these categories at once, you can boost your credit score 100 points or more.

How Financing Hurts

As with all things, there must be some bad with the good. There are a few detrimental effects of financing a car. You will lose a few points for having your credit report pulled and for having a new credit account. The points you lose will come back on their own. The effects of having your credit report pulled disappear after three months. The effects of having a new credit account, and the corresponding high balance, will fade with each on-time payment that you make.

The minimal negative impact of financing a car fades quickly, especially when compared to the positive aspects. The main issue will be making your payments on time. After making 18 on-time payments you will see the greatest boost to your credit score, so don’t think you need to opt for an extended pay-off period. Less than 60 months is typically best. Exactly how many points your score will improve depends on how high or low it was before your financed a car. If you already have excellent credit (over 720), the boost to your score will be minimal…perhaps 10 points. On the other hand, if you required specialized financing because your score is under 580, eighteen on-time payments in excess of $150 per month could potentially boost your score the 100 points mentioned above.


About the author: Jerry Coffey


Jerry Coffey spent many years in a debt-riddled gray area somewhere between broke and desperately broke. His seemingly endless need for more and more cash led him to payday loans, repossessions, bankruptcy, and depression. After years of the same financial style, he heard a piece of advice that inspired him to find a way to change. The advice: ''The very definition of a fool is someone who continues to do the same things, but expects different results.'' This led him to a much more frugal lifestyle that sees all of his bills paid on time and a growing savings account. Even the seed of a retirement account has begun to sprout.


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