Understanding auto loans can be tricky at first, especially if this is your first time buying a new or used car in Nova Scotia. Often, first-time buyers shy away from getting a Nova Scotia auto loan, fearing that doing so will negatively affect their credit score and impact their ability to lend in the future. But the fact is that getting an auto loan can improve your credit situation, provided you handle things in the right way.
Here’s more on how getting an auto loan will affect your credit score over time.
How Do Auto Loans Appear On My Credit Report?
When looking for an auto loan, you will notice changes to your credit score. Most lenders run a background credit check to see if your credit score is good before approving an auto loan. These checks appear as hard inquiries on your credit report and can cause your score to drop by a few points. Even if there are multiple hard inquiries on your credit report over 30 days, only one will be noted in your credit report.
Instead of applying for auto loans from several lenders, the smarter alternative is to use a Nova Scotia auto finance calculator. A loan calculator makes it easy to compare the terms and conditions of loans from different lenders, and it’ll help you choose the lender who’s offering the best deal. This calculator will help you avoid multiple hard inquiries, all of which will adversely affect (though slightly) your credit report.
When you take out an auto loan to buy a new or used car, it will be considered new debt on your credit report. This will also cause your credit score to drop by a few points. However, the drop in credit score is only temporary. In the end, getting an auto loan can benefit your credit status in the long run, provided you treat it appropriately.
How Does An Auto Loan Improve A Person’s Credit Score?
Taking an auto loan doesn’t automatically improve your credit score. However, how you repay the loan has a massive impact on your score. The most important thing to do here is to keep paying your monthly loan installments on time.
50% of your credit score is based on the payment history. If you consistently pay on time, your score will rise over time. 10% of your score is dependent on the different kinds of credit you use, and another 10% is based on new credit. By maintaining multiple lines of credit, like auto loans and credit cards, you can boost your credit score over time.
Also, it’s a good idea to request a copy of your credit score from a credit bureau to see if there are any errors. Remember that requesting a copy of your credit score from a bureau is considered a soft inquiry and won’t damage your score. You can check your score any number of times without any negative impact. Finally, make sure that you read the fine print on your Nova Scotia auto loan before you sign on the dotted line. Doing so will help you avoid any trouble later on. Also, you might be tempted to repay the loan ahead of schedule to be free of debt. But you may have to pay a penalty if you do this. In this case, it’s better for your credit score and wallet if you pay according to the schedule.
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