Get an Auto Loan to help credit only?

[scarfase99]

So i don't have a lot of big credit (never financed a house or car), and a dealer buddy of mine told me that if i get the loan for X amount, and pay it off after like 5 months, that then that X amount of credit will stay on my report forever (and it looks good for when I go to buy a house.

I should establish, i'm 30 years old, and have a credit score of 750.

So the question i have is, was the car dealer right? Will having a loan for say 20,000 that's paid off in full (say after 5 months) benefit me just the same as if i leave it out for the full 3 years?

[chane]

Originally Posted by scarfase99

So i don't have a lot of big credit (never financed a house or car), and a dealer buddy of mine told me that if i get the loan for X amount, and pay it off after like 5 months, that then that X amount of credit will stay on my report forever (and it looks good for when I go to buy a house.

I should establish, i'm 30 years old, and have a credit score of 750.

So the question i have is, was the car dealer right? Will having a loan for say 20,000 that's paid off in full (say after 5 months) benefit me just the same as if i leave it out for the full 3 years?

750 is a great credit score. I wouldn't get a loan on a car just to try to improve your credit scores, unless you need a car and can't pay for it in cash.

As far as 5 months or 3 years, usually the longer the positive history, the better.

[Lian]

From a credit scoring point of view, my opinion is no. The FICO scoring benefit comes from adding to your mix of credit, having both open revolving and installment accounts reporting. Credit mix is a small part of FICO scoring. Once the loan is paid, the installment loan will no longer add to your current mix of credit. You will take an immediate hit for a new inquiry to secure the loan, which will impact your score, albeit in a minor way, for one year. It will also reduce your average age of accounts, even after paid. You will also temporarily have a high % util on an installment loan. While installment loan % util scores much, much lower than revolving % util, it will nonetheless have some impact.

All in all, for just 6 months, you will gain little, if anything. And it will cost you some interest.
Aside from credit scoring, the presence of a closed installment loan might have some positive impact on a future manual review of your CR, but that is a subjective thing.

[ntnsllc]

this is funny. You should slap your dealer friend! They're trying to sell you a car AND financing. If you can, pay cash. However, the dealer profits when you finance through them. If you want to know whether they're telling you the truth, tell them "great idea, I'll go get the loan through my credit union and bring you a check. then I'll pay off my credit union inf 5 months!" I promise, he'll turn around and say something like "oh, we're set up to do financing through your credit union."

And the 5 months? He wants you to finance through them for five months. If you pay off the loan within 90 days, in most states the finance company will charge the dealer back any commissions or profits they paid originally! That's why they want you to keep the loan for five months.

What you really should do is say okay, I'll finance through you in exchange for a steep discount on the car. Heck, I'll even let you pack the interest rate with your backend profit. Once the loan is funded to the dealer...go pay it off. Usually within 14 days to avoid paying any interest. It's tricky...but it works. If they think they're getting $1,500 commission from the bank carrying the loan, they may cut $1,000 off the price of the car and still come out $500 ahead...but when you pay it off in 14 days, they'll likely be charged back the $1,000.