Buying a vehicle can be exciting, but obtaining a car loan can also be a little nerve-wracking. If your credit isn’t perfect, you might think that adding a new loan to the mix might be a bad idea. Does a car loan build credit, or hurt it? The truth is more complicated. It could be a wise decision, but it depends on several factors. If you’re wondering “Do car payments build credit?” here are some things you should know.

How Does Financing a Car Help Your Credit?

Buying a car because you need one is a practical choice. If it can also help improve your credit, it’s even better. Depending on your circumstances, a single loan on your credit report could look good or bad. Nevertheless, a vehicle loan:

• Adds new types of accounts to your credit report. When the three reporting agencies evaluate your credit to produce a score, they often look for different types of loans. If you have a lot of credit cards or other revolving debts on your report, adding an installment loan to buy a vehicle may help balance them.
• Expands your credit record. Building your credit takes time, and the best reports have a variety of credit types expanded over several years. Applying for a car loan helps extend your credit history by showing different loans opened at regular intervals.
• Gives you opportunities to add more on-time payments to your report. On-time payments look good to lenders, so adding more without increasing your debt utilization too much can make a positive difference in your score over time.

Does Buying a Car Hurt Your Credit?

If you’re trying to build (or rebuild) your credit, it’s easy to worry that applying for a new loan could hurt your credit score. However, you have more control over it than you may think. Getting a loan is always a risk, but it can return rewards if you take care of it. Here are some factors to keep in mind when applying for a loan:

• A loan application lists new inquiries on your credit report. Every loan application can appear as an inquiry on your credit report. Lenders don’t like to see too many new inquiries, as it may appear that a borrower is desperate for money. If you apply to several lenders for similar loans at the same time, it usually appears as one inquiry.
• It adds a new account to your record. Opening a new account can cause a small dip in your credit score. Applying for a new loan once every few years is less damaging than applying for one a couple of times each year.
• A loan increases your total debt. The amount of debt you carry affects your credit, although it depends on several factors. If lenders think you have too much debt, you may need to pay off more of it before you can apply for other loans.
• A loan means you have one more payment you must make on time. Paying on time is the hallmark of good credit, but even one or two missed payments can seriously affect your score. That’s why it is so important to apply for a loan amount you can afford to pay on time, every time.

In order to get a car loan, you may need to work on your credit by paying down debts, correcting errors in your report, and saving up for a down payment. The next step is to find a reliable lender. With JDBNOW’s buy here pay here financing, you can complete the loan process and buy a car at the same time.