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Do car loans help you build credit?
I want to build my credit, but I'm not sure how to approach it. I heard that a car loan can build your credit—and I'm in the market for a new car anyway, so I figure that might work out perfectly. Is this my best option?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
If you’re looking to build credit, a
car loan
is a great idea! However, you should know that it’s all about time and patience.When you take out a car loan, you’ll get a hard inquiry on your credit report. This will result in a drop in your credit score of five to 10 points. The good news is that a car loan is an installment loan that, when mixed with revolving credit like credit cards, can positively impact your credit. If you continue to pay on time, your credit score will rise over time.
Conversely, a car loan can hurt your credit if you miss payments. If you’re more than 30 days late, you even risk having your car repossessed, which can lead to a drastic dip in your credit score. As long as you make your payments on time, though, you should be okay.
If you decide to get a car loan to improve your credit, don’t forget to budget for car insurance. Your loan will require full coverage, so make sure to shop around!
The easiest way to do this is through the
Jerry
app—we’ll get you customized quotes from top-of-the-line providers, so that all you need to do is choose the one that works best for you! (And once you’ve picked one, we’ll even help you switch!)Best of luck with your car loan, and your credit!
MORE: How to get a cosigner for a bad credit car loan
View full answer
- Gregory R.
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Jerry partners with more than 50 insurance companies, but our content is independently researched, written, and fact-checked by our team of editors and agents. We aren’t paid for reviews or other content.
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