How does a car loan affect your credit score?
Thinking about getting a new car? This is an exciting process, there’s no doubting that! Scrolling through pages of different makes and models, visiting car lots and conducting test drive after test drive – it’s a lengthy process, but once you’re behind the wheel of the right ride you will know it was all worth it.
Of course you know, finding the perfect car is the easiest part of the process, but now you have to buy it! As purchasing a car is a pretty massive investment for most wallets, many consider applying for a car loan to help ease the financial burden. This is a standard procedure, but you should be aware of how car loans can affect your credit score.
As you might expect, failure to make your loan payments on time could be detrimental to your credit score with a purchase this big. Though if you pay on time, you could just as easily boost your score. Let’s break this down a bit further for you as your car loan can affect two things: your credit report and credit score.
Your credit report is a summary of your credit history that includes a list of all the times you have applied for credit and the companies that have looked at your credit report. It also includes a list of any payment defaults. Credit reports provided on the new comprehensive credit reporting regime will also display the repayment history and current loan balance.
It might be a good idea to look over a copy of this report to ensure it is being recorded correctly.
Now, your credit score is the number that is calculated using the information in your credit report and used to indicate whether or not you are a reliable borrower. So should you start missing payments or have lots of applications for credit, this score will begin to drop which can ultimately wreck your chances from getting a loan in the future. Not to mention, if you do get a loan, it is possible that you will pay a higher interest rate as the number unveils that you are a risk to loan money to. You need a good score for a majority of the major purchases you are going to make in life, so it’s important to maintain a high number right off the bat.
Sort your car loan with the experts at Beyond Bank Australia and we’ll help keep your credit safe – contact us today!