If you’ve mostly used credit cards and are considering your first auto loan, it’s natural to wonder how quickly a car loan can improve your credit score. You’re likely asking: Will this help me build credit? Is it worth the risk? The short answer is yes, a car loan can build credit, but how fast and how much depends on how you manage it—and your overall credit profile.
In this blog, we’ll explain exactly how auto loans impact your credit report, what to expect in the short and long term, and how to strategically use car financing to strengthen your credit. We’ll also introduce Ava Finance, a powerful credit builder app that can help you monitor and accelerate your credit-building journey.
How a Car Loan Affects Your Credit Score
Auto loans can influence your credit in multiple ways—some positive, some temporarily negative.
1. Initial Impact: The Credit Score Dip
When you apply for a car loan, your credit takes a small hit because of a hard inquiry. This happens when a lender checks your credit report to assess your risk. Each inquiry can shave a few points off your FICO® score and stays on your report for two years.
Opening a new loan also lowers your average account age, a factor that makes up 15% of your credit score. Additionally, the new account initially has no payment history, which may slightly drop your score.
However, these impacts are usually minor and temporary.
2. Long-Term Benefit: On-Time Payments Build Credit
Once you start making on-time monthly payments, things begin to shift. Payment history makes up 35% of your FICO score—the largest component.
Consistently paying your auto loan on time over several months establishes you as a responsible borrower. As a result, you may see your credit score rise gradually within the first 3–6 months.
If you're new to credit or rebuilding, this can provide your profile with valuable installment loan history, diversifying your credit mix (which accounts for another 10% of your score).
Should You Take a Car Loan Just to Build Credit?
While auto loans can help your credit, you should never finance a car solely for the purpose of building credit. Car loans involve interest charges, fees, and potential depreciation.
Things to Consider:
- Loan length: Longer loans may lower your monthly payment but cost more in total interest.
- Interest rate: Rates are often higher for people with poor or limited credit.
- Affordability: Always ensure the monthly payment fits your budget—even in emergencies.
Pro Tip:
If you can afford a shorter-term loan with a lower interest rate, you’ll save more money over time. Making extra or larger payments can also reduce interest and pay off your loan faster.
What About Leasing a Car—Does It Help Your Credit Too?
Yes, leasing a car can also help build credit, as long as:
The leasing company reports to the major credit bureaus (Experian, Equifax, and TransUnion)
- You make on-time payments every month
Like auto loans, leases are installment agreements that show lenders you can manage recurring obligations. Just keep in mind that missed lease payments hurt your score the same way as loan defaults.
Can You Raise Your Credit Score by 100 Points in 30 Days?
While there’s no magic formula, it’s possible to improve your credit score quickly with a focused strategy. However, using a car loan alone won’t usually result in a 100-point increase in a month.
Focus on These Key Tactics Instead:
- Pay down credit card balances: Lowering your utilization ratio (ideally below 30%) can have a big, fast impact.
- Make every payment on time: Even one late payment can set you back months.
- Avoid new credit applications: Each one triggers a hard inquiry.
- Keep credit accounts open: Older accounts help your average credit age.
These actions—combined with an installment loan like a car loan—can collectively improve your score over time.
How Many Points Will a Car Loan Improve Your Score?
There’s no fixed number of points a car loan will add to your score. It depends on:
- Your current credit profile
- The loan amount
- Your payment history
- How you manage other credit types
If you make consistent, on-time payments, you could see gradual gains in your credit score over 6–12 months. For some, this might mean an increase of 30–100 points over a year.
How Long Does a Car Loan Affect Your Credit Report?
A car loan has both immediate and long-term implications.
- Hard inquiries remain for 2 years
- Open accounts stay on your report and influence your score while active
- Closed, paid-off accounts with no delinquencies remain on your report for up to 10 years
- Late payments stay for 7 years
Even after the loan is paid off, its presence on your report can continue to help your score, especially if you never missed a payment.
Manage Your Credit Like a Pro
You’re the most influential person when it comes to your credit score. If you commit to responsible borrowing and consistent on-time payments, you’re taking powerful steps to improve your financial future.
Actionable Credit Management Tips:
- Use tools to monitor your score monthly
- Set up auto-pay to avoid missed payments
- Diversify your credit mix gradually
- Review your credit report annually for errors
Ava Finance: Your Credit-Building Co-Pilot
If you're looking to strengthen your credit without the risk of taking on more high-interest debt, Ava Finance can help.
Ava Finance is a credit builder app designed to help people develop healthier financial habits and increase their credit score over time.
With Ava, You Can:
- Build credit with low-risk, manageable payments
- Receive personalized financial insights
- Monitor your credit score and progress in real-time
- Get support without judgment
Whether you’re preparing for a major purchase like a car, or simply want to upgrade your financial profile, Ava provides the structure and guidance to succeed—on your terms.
Conclusion: Don’t Just Build Credit—Build Confidence
Auto loans can be a great tool for credit building, especially if you're new to borrowing or looking to strengthen a thin credit file. But the real key lies in how you manage that loan—and how you support your credit growth through smart strategies and tech tools.
Instead of relying on guesswork, use Ava Finance to track your credit progress, get personalized tips, and create positive financial momentum. With Ava by your side, you're not just building credit—you’re building a better financial future.
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