Is keeping a car loan worth it to establish better credit? (pay, rent)

[CTbrooktrout]

Thinking of buying a new car and one of the rebates requires I finance through the car manufacturer. I would be capable of paying off the car after the required minimum period of 3 months after which I'd incur no penalties for paying down the loan.

The financing is 3.9-4.5% for a minimum loan amount of $7,500k. I might do 10K.

I know a loan can help establish a good payment history and possible boost credit score. However would the boost to my credit score be worth paying 3.9% or more?

I'm 25yrs. old with just a credit card currently. I'll be moving into an apartment in a few months where I'll have utility bills that will hopefully establish more credit for myself.

If anyone else was in my situation, would you keep the loan ongoing to establish credit even if you could pay it off?

Thanks!

[sterlinggirl]

Try to think of it this way...if I offered to make a good report on your credit, would you be willing to pay me $35/month for that privilege? Even if you did decide to pay me that much, how much will it save you in the future?

My 2 cents is to just pay off the car ASAP and let your credit score take care of itself.

[Elke Mariotti]

Originally Posted by CTbrooktrout

Thinking of buying a new car and one of the rebates requires I finance through the car manufacturer. I would be capable of paying off the car after the required minimum period of 3 months after which I'd incur no penalties for paying down the loan.

The financing is 3.9-4.5% for a minimum loan amount of $7,500k. I might do 10K.

I know a loan can help establish a good payment history and possible boost credit score. However would the boost to my credit score be worth paying 3.9% or more?

I'm 25yrs. old with just a credit card currently. I'll be moving into an apartment in a few months where I'll have utility bills that will hopefully establish more credit for myself.

If anyone else was in my situation, would you keep the loan ongoing to establish credit even if you could pay it off?

Thanks!

• If I understand you correctly, you are THINKING of buying a car - you haven't yet; when you do, and don't pay cash, they will pull your credit report.
• And you'll be moving in a few months; have you been approved already, or will they pull your credit report?

• A hard inquiry (for the apartment rental) will have a minor impact on your credit score.
• A car loan is not only a hard inquiry, but will also be a long term liability (they don't take your plan to pay it off in three months into consideration). And the amount of the liability ($10K) will count heavily towards your debt to credit ratio (don't know what your available credit is on your credit card) which will have an impact on your credit score.

So, if at all possible, get your approval for the apartment first and THEN apply for the car loan. The reverse could hurt you with regard to the car loan in terms of your score (have no idea what your score is currently).
OR... if you don't need to borrow the cash to buy the car, and you want to establish credit via a loan, go to a local Credit Union, tell them you want to borrow $1,000 as a personal loan and are willing to put $1,000 in a CD as collateral - maybe for one year. The minimal interest on the CD will partially offset the cost of the personal loan, yet the loan payments will help establish additional good "points" in your score over time. In order to maximize the "length of credit" factor, you need about 15 years of credit history--you're on your way already!
Good going!

Hope this helps somewhat

[golfgal]

Your utility bills and rent will do nothing for your credit report unless you are very late or default on them, they will be reported as negatives then. If you have a credit card I would use that monthly, pay it off each month and establish your credit that way. Your reasoning is correct about the car loan helping build your credit report but I don't know that it is worth paying more each month for that. If you can find an account to put the car money into that is earning more than 5%, then it makes sense to do what you are doing. As far as the rebates go, those are negotiable too. If I were you I would negotiate at 0% loan, chances are it is about the same as any rebates, pay on the loan for a couple years to establish your credit rating then pay off the loan.

As far as 'qualifying" for an apartment, not every area of the country does this so it may or may not be an issue to have an inquiry on the report and quite honestly, landlords are looking for payments made on time not inquiries.

[texdav]

Taht does sound like much of a deal to me really.

[Mathguy]

Originally Posted by CTbrooktrout

Thinking of buying a new car and one of the rebates requires I finance through the car manufacturer. I would be capable of paying off the car after the required minimum period of 3 months after which I'd incur no penalties for paying down the loan.

The financing is 3.9-4.5% for a minimum loan amount of $7,500k. I might do 10K.

I know a loan can help establish a good payment history and possible boost credit score. However would the boost to my credit score be worth paying 3.9% or more?

I'm 25yrs. old with just a credit card currently. I'll be moving into an apartment in a few months where I'll have utility bills that will hopefully establish more credit for myself.

If anyone else was in my situation, would you keep the loan ongoing to establish credit even if you could pay it off?

Thanks!

At that low rate, Just make the payments for a while and the interest is pretty minimal.

[UrbanAdventurer]

If you could pay cash I would just do that and save the hassle.

[Grandpa Pipes]

Originally Posted by CTbrooktrout

Thinking of buying a new car and one of the rebates requires I finance through the car manufacturer. I would be capable of paying off the car after the required minimum period of 3 months after which I'd incur no penalties for paying down the loan.

sorry but this is a "well duh " The best use of your money is TO AVOID ANY LOSS OF IT TO LOAN INTEREST RATES!

SCREW FICO! LIVE DEBT FREE!!

[Mathguy]

Originally Posted by UrbanAdventurer

If you could pay cash I would just do that and save the hassle.

Yeah, but if you are young it's good to establish a solid FICO score.

Paying an extra $60 in interest or such is totally a good financial move if it helps your score.

I agree with the pay cash attitude but for eventual home ownership that's going to almost certainly require a loan. Some states also allow credit scoring which impacts your insurance costs so you might save more money in this scenario by keeping the loan.

When they introduced credit scoring in my state a few years ago my insurance went down about 15%.

[Grandpa Pipes]

Originally Posted by Mathguy

Yeah, but if you are young it's good to establish a solid FICO score.

sorry but I disagree. Why would anyone want to enslave themselves to such a system as FICO??

IMO it's better to be debt free and live free of the bankers and their corrupt enslaving loan system. Fight Back!