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Have you just rolled your new ride from the car dealer’s parking lot? If it is a yes, or if you are planning to get yourself a new car then probably you should also think about the auto loan that you have just signed for or you will be signing for in the future. If you have any thoughts about how long it takes for car payments to improve credit try to remain very careful. Remember small mistakes might make it difficult to secure your other credit lines. Here in this article we will be broadly discussing how long it can take for car payments to improve credit score.

Can A Car Loan Help In Building Credit?

Many consumers looking forward to buying a new car would like to know how it is actually going to affect their overall credit score. Remember a car loan doesn’t build credit, however, you can always use it to increase your overall credit score.

In general, a car loan has two very common effects on credit:

  1. It helps by increasing the credit history unless you have any missed or late payments. This can surely help in building your score.
  2. It causes a hard inquiry report on your credit score, which can be the reason for a temporary point reduction to credit score..

Relation Of Your Credit History And Auto Loans

The overall chance of an auto loan affecting your credit score or credit history is extremely high. Usually, an auto loan is added to your credit report as an instalment account. This basically means that you pay the exact same amount for a particular period of time. In case you aren’t having any sort of instalment loan on your credit, then getting yourself an auto loan can help your profile get a better credit mix. If you are paying your car payment on time each month, your credit report would be showing that your loan is either paid as agreed or current. Especially because of the fact that your credit payment history has the highest effect on your score, a paid as agreed or current status can surely be greatly beneficial for your total score.

Furthermore, in case you fall behind on your loan payments by a month or more, then you might be at a risk of damaging your overall credit score and it can even cause your vehicle repossession. If you have paid all the loan related payments right on time but your credit report still shows an error related to late payments, you must always look into it while filing a dispute.

Factors About Auto Loans Influencing Your Credit Score

There are five different factors that can actually influence your overall credit score. These factors include:

  • Payment History.
  • Length of credit history.
  • Types of credit.
  • Utilization ratio.
  • New credit.

Payment History: Remember among all, payment history is undoubtedly the most significant factor that directly affects your credit score. It makes up almost thirty-five percent of your overall FICO score and it is further taken into consideration by most of the lenders. In order to answer the question of how long  it can take for car payments to improve credit score, payment history is a very important factor.

Length Of Credit History: Especially when it comes to length of credit history, remember older is better. This is the reason why you must always keep your credit cards open when you aren’t using them. When a new credit card is opened, it can also create a drop in your total credit score because it decreases the overall time span of your history. Remember the length of your credit history makes almost fifteen percent of your score.

Types Of Credit: In general there are two different type of credit when it comes to how long does it take for car payments to improve credit score. These are:

  • Revolving credits.
  • Installment credits.

Installment credit basically means that you are paying a fixed and regularly scheduled amount every month against your car loan. A few examples of this credit type include student loans, mortgages, car loans etc.

Revolving credit, on the other hand, is an open credit line with constantly changing payments and balances for example credit cards, loans etc. They make almost ten percent of your total credit score.

Utilization Ratio: The utilization ratio makes almost thirty percent of your overall credit score. It is generally used to compare your overall outstanding balance in your total credit limit.  Remember outstanding balance is the amount that you owe while your overall credit limit is the maximum you can borrow. Your goal should always be to borrow twenty percent or less than your total credit limit.

New Credit: New credit affects almost ten percent of your score. Remember the more loans you  apply for  in a short time span, the greater  your chances of credit score drop.

Tips Related To Auto Loan Payments That Can Improve Your Credit Score In Six Months

The fastest way of improving your credit report or credit score is by being a responsible buyer. This isn’t only limited to your regular monthly auto loan repayment. If you pay the full amount of your bills on time each month, you can slowly improve your poor credit score. Remember when it comes to how long does it take for car payments to improve credit score there isn’t any quick fix for a bad score, but being responsible with your monthly payments can be of definite help. Furthermore, two different tips can help to improve your credit score.

  • Having a healthy credit types mix.
  • Keeping your credit card open.

All these above points should always be kept in mind while answering the question of how long does it take for car payments to improve credit score. Furthermore, if you are planning to improve your score by making use of your home rents or utility bill payments, you can always try us. We at Credit Rent Boost work with  homeowners and tenants and report their rent payments to established credit bureaus like TransUnion or Equifax. With us, you can remain assured about complete confidentiality and great performance. If you have any further questions regarding our services or credit check, don’t forget to visit our website.

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