
The purchase of a vehicle is a major life event, but can also affect your credit score. Whether or not you buy your next vehicle with a car loan can depend on several factors, including how much you want to spend and how well you manage your credit.
Getting a loan for a vehicle can help improve your score, and you will be able to rebuild or build up your credit. A car loan may also enable you to refinance a mortgage or other loans in the future at a lower-interest rate.
What is the impact of an auto loan on your credit score?
Your credit score is determined by many factors. This includes your payment record and your length of credit history. A long credit history, as well as on-time payment can help increase your credit rating.
Credit utilization ratio is one of the most important factors that determines your credit score. This ratio measures the amount of debt you have revolving compared to your total limit. Too much revolving credit can affect your credit score. It's best to keep balances low, and pay off your debts as quickly as you can.

Your credit mix, or the combination of different credit types you have, is also taken into account by your credit rating. You should aim to have a good mix of installment loans, like auto loans or mortgages, and revolving debt, such as credit cards.
You can improve your credit mix by applying for new revolving credit, such as a new credit card, but you don't need to apply for all of it at once. You could be sending the wrong message to your lenders by doing so.
The length of your credit history and the age of your accounts is also important to your credit score. Financing a new car can cause your average account age to decrease slightly, which can have an adverse effect on your length-related scoring factors.
Your credit score can be negatively affected by the amount of money owed. This variable accounts for 30 percent of your credit rating. Addition of a new installment credit to your report will increase the amount you owe.
It is common for people to pay off their car loan early. It can negatively impact your credit score. So, it is important to consider the consequences before paying off your auto loan.

Maintaining your auto loan with timely payments can have a positive effect on the length-related score factors that account for 15% your credit rating. If you close an automobile loan, the average age of your account will decrease because it is no more considered active.
Getting a new car loan can have a positive impact on your credit score as it helps you establish a strong credit history with reliable payment history. You should be aware that it may take some time for your credit score from a new car loan to improve.