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How much does a car loan impact your credit score?
I'm thinking about getting a car loan to build up my credit. How much does a car loan improve your credit?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
That’s a good question! If you need a car in addition to building your credit, a
car loan
is a financially savvy move. However, it’s a long-term winner; in the short term, you may actually see your credit score drop.The reason your credit score drops when you get a car loan is due to the hard inquiry you get from lenders running your credit. It’s usually only a five to 10 point drop. Your amount of debt will also go up, which may have a small effect on your credit.
In the long run though, you’ll come out on top. As long as you continue to make your payments on time, your score should gradually rise as you pay down your debt!
If you take out a car loan, remember that you’ll also need to budget for car insurance. Almost all new car loans require full coverage, so it’s more expensive than basic liability.
The easiest way to get the best deal on the coverage you need is to use the
Jerry
app! We’ll get you personalized quotes from top insurers so that all you need to do is pick the plan that works best for you. (And once you pick one, we’ll help you switch, too!)View full answer
- Gregory R.
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