Most people know that you need a credit score to get a car loan in Burlington but does having that loan help your score? Once you qualify for the loan, do it begin repaying you by helping your credit score?
Servicing any debt will help boost your credit score, including an auto loan!
Burlington auto loans and credit scores
Your credit score will influence how many lenders will work with you and the interest you pay on that loan. Once you have the loan, a few successful payments will gradually begin increasing your score.
A significant portion of a credit score is made up of payment history. The more debt you pay on time, every time, the higher your score will go.
According to Experian, your payment history can make up 35% of your credit score. If you’re looking to increase your score or want to know how an auto loan affects it, that’s how much paying on time can influence the score.
Consider the next highest part of the credit score is amount owed, which comes in at 30%, and you see just how important it is to stay on top of payments.
With that in mind, you have two very simple tools to ensure you never miss a payment.
Automatic payments – Setting up automatic payments when agreeing the Burlington auto loan is the best move you can make. As long as you always have sufficient funds or an overdraft so the payment is made, this is the easiest way to always pay on time.
Payment reminders – Setting an alarm on your phone, a calendar alert on your work computer or other reminder somewhere you spend a lot of time can work too. It isn’t as effective as automatic payments but it’s the next best thing!
Early auto loan repayments and credit scores in Burlington
If paying your auto loan on time helps your credit score, what effect does early repayment make? This is where things get a little complicated.
Repaying a loan in full proves you’re a low risk borrower, which gives lenders confidence when you want another loan.
Repaying the loan also lowers your debt utilization ratio, the amount of available debt you are using.
However, you might find that repaying the loan early may reduce your credit score slightly. For a time at least.
This is because the credit mix also makes up part of the score. This is the variety of debt you have, loans, credit cards, student debt and so on. Having a narrow mix can reduce your credit score slightly. We don’t know why, it just does.
Repaying your Burlington auto loan early should be done to benefit your financial situation and not to improve your credit score. Having more money left at the end of each month is a benefit. Not have extra debt hanging over you can also be a benefit.
Either way, it’s your loan, do whatever you think is best with it!
For those of you who know that you have a challenging credit situation, please visit Dixie Auto Loans where we have a team of credit specialists ready to help you get approved for a car loan today!