Ancaster Car Loan Payments Help your Credit Score

Ancaster Car Loan Payments Help your Credit Score

Posted on March 11, 2021

Do Ancaster car loan payments help build your credit score? This was a question our team was asked last week. This is another of those questions we hear a lot, so is fertile ground for a blog post.

You need a credit score to get a car loan but does servicing that loan repay you in kind? Does managing the car loan help improve your credit score?

Yes it does!

Ancaster car loan payments and credit scores

Successfully servicing any debt will help increase your score. Whether that’s an auto loan, credit card, mortgage or something else entirely.

Your credit score is made up of several elements, payment history, credit mix, credit age, credit utilization and some other things. Paying off a car loan positively impacts a couple of those.

Payment history

Your payment history can make up to 35% of your credit score and is made up entirely of paying debt on time. Pay your Ancaster car loan on time and it helps build a positive payment history, which will increase your credit score.

This is why we always recommend setting up automatic payments for car loans in Ancaster. So no matter what’s happening in your life, you’re always making your payments on time, every time.

Credit mix

Your credit mix is the range of credit you’re using. The more credit types you use, the more positive the impact. This isn’t an encouragement to borrow though. Your car loan will form part of the mix along with your mortgage, credit cards, personal loans and any other borrowing.

It doesn’t have the same kind of influence as payment history but every little counts.

Will paying the car loan off early impact my credit score?

Yes and no. If you repay your car loan, you’ll have fulfilled the contract, just a little early. You would think this would be an overwhelmingly positive thing but your credit score may dip a little because you have reduced your credit mix.

That doesn’t mean you shouldn’t repay it if that works for you though. You’ll have to check the loan paperwork for any early repayment penalties first.

Some Ancaster car loans have early repayment penalties while others don’t. They are usually for the first year or two but can be for longer with larger or specialist loans. They are simply there to compensate the lender for lost interest and nothing more.

It shouldn’t be by much and it shouldn’t be for long but you may see a small dip. This can be offset by having lower credit utilization though so isn’t all bad news!

We would suggest checking your personal situation, checking for repayment penalties and then making an informed decision about early repayment and not think about the credit score.

When you need another Ancaster car loan, we’ll be here and ready to help.

Contact Unique Chrysler for help, advice and competitive Ancaster car finance.

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