Getting close to buying a vehicle, advice on my plan/plans.

[GzUp]

ive made a similar thread about paying cash or financing and for the most part I felt paying full was the best idea.

Well my plan is to buy a home in a year so that was the big reason I didn't want to finance, I didn't want a extra bill once I got my home.

But now I got to thinking, my credit is not the best in the world even though I'm working on it by having a credit card and going right by it. So this is my plan and I want to know if it's smart of me to do.

I finance the car, putting a big down payment and the rest I pay monthly to increase my credit, but I will only do this for a year, once i get close to getting approved for a house loan I pay off my car loan in full.

This is another plan that I have, I open a new credit card, I think I can get up to 5,000 in my new credit card, I have the car note charge my new credit card and of course I pay it off once it gets charged.

What u guys think of both plans?

 

[franknitty711]

Scrap both plans and if you got the money buy a car in cash. Doesn't have to be the nicest car, just something reliable. If you really are serious about purchasing a house then opening new credit accounts is bad it will knock your score down on that alone. However, if you have good credit and you wanted to increase your credit to debt ratio that makes sense.

While planning to purchase next year, continue to save money. Once you get into a home you will need cash reserves on deck the banks need you to at least have a couple months of mortgage payments in the bank saved.

 

[hashmander]

paying off a car loan debt quickly won't help your score, in some cases it can hurt.

in the won't help dept: this doesn't prove you can make loan repayments over a long period of time, which is what a mortgage would be.

in the hurt dept: if you had a $15k loan and you owe $5k, your utilization is 33%. if you pay off the $5k, yes that means you have $5k less in debt, but it also means your report is showing a $15k "credit line" as closed. even if you have the money i would leave a year's worth of payments on there before you get the house and if you want to pay it off do so after you purchased the house.

in your other plan, paying off the credit card after you get the bill won't hurt your utilization because credit cards don't close simply because you pay them off (like an installment loan). the credit card being maxed out at one point (however short) might have a small short term impact.

 

[GzUp]

So it's a bad idea?

I had planned to talk to my bank today about this.


I just figured paying payments monthly on my car note it will increase my credit score monthly. And once i pay it off that they couldn't take away the points they gave me... also if I pay it off early they can drop my credit score?.. does that make sense?

 

[88m3]

the real thing you need to worry about is your debt to income ratio

 

[Pressure]

it seems you aren't looking to go too expensive on the car, don't have much credit history, and I assume this is your first home?

You'd probably be better served looking into one of the first time buyers programs, but you'll need to hold a decent amount of cash if the above is also true.

 

[hashmander]

So it's a bad idea?

I had planned to talk to my bank today about this.


I just figured paying payments monthly on my car note it will increase my credit score monthly. And once i pay it off that they couldn't take away the points they gave me... also if I pay it off early they can drop my credit score?.. does that make sense?

you're not being punished for paying off your debt, you're being punished for increasing your credit utilization. i don't know anything about you so these are just numbers:

credit card #1: 5k limit, $2.5k balance
credit card #2: 2.5k limit, $1.4k balance
car loan: $15k, $5k balance

total available credit: 22.5k
total balance 8.9k
utilization: 39%

car loan paid off:
total available credit: 7.5k
total balance 3.9k
utilization: 52%

that may not apply to you because your other debt could be quite low and paying off the car loan would lower your utilization. you know your own situation best.

also paying off a big debt quickly doesn't prove that you can handle an even bigger debt long term.

 

[GzUp]

you're not being punished for paying off your debt, you're being punished for increasing your credit utilization. i don't know anything about you so these are just numbers:

credit card #1: 5k limit, $2.5k balance
credit card #2: 2.5k limit, $1.4k balance
car loan: $15k, $5k balance

total available credit: 22.5k
total balance 8.9k
utilization: 39%

car loan paid off:
total available credit: 7.5k
total balance 3.9k
utilization: 52%

that may not apply to you because your other debt could be quite low and paying off the car loan would lower your utilization. you know your own situation best.

also paying off a big debt quickly doesn't prove that you can handle an even bigger debt long term.

I have a hard time with numbers and that credit utilization is confusing.

This is my situation if it helps.

I have one credit card with a max of 500, I just opened it and it's my first ever credit card. I only use it to pay my phone bill which is 35 dollars, I pay it in full once the bill comes in.

I have 15 grand in the bank right now, I planned to pay 10 grand down and finance the rest.

Reason I want to pay it quickly is because I don't want to be paying the extra interest that will accumulate and also when it's time to get approved for a house loan I worry that they will give me less of a loan cuz I have car payment.

 

[hashmander]

i'd recommend you get a secured credit card from your bank (or credit union) with some of the money you have saved in the bank and buy and make payments on it like normal. i'm not an expert in this area i only know from my own experience with credit and buying shyt. i don't see how you're going to prove credit worthiness for a mortgage with just a $500 credit card. you need to build your credit.

Build Your Credit with a Secured Credit Card

 

[GzUp]

i'd recommend you get a secured credit card from your bank (or credit union) with some of the money you have saved in the bank and buy and make payments on it like normal. i'm not an expert in this area i only know from my own experience with credit and buying shyt. i don't see how you're going to prove credit worthiness for a mortgage with just a $500 credit card. you need to build your credit.

Build Your Credit with a Secured Credit Card

My current bank and credit card is from a credit union.

 

[hashmander]

My current bank and credit card is from a credit union.

set up another one, ask them what is the maximum number of secured credit cards you can have. the more available credit you have the better and it's your money so it doesn't carry as much risk for the bank, but they report on time payments, etc to the credit bureaus same as if it was unsecured credit.

 

[GzUp]

set up another one, ask them what is the maximum number of secured credit cards you can have. the more available credit you have the better and it's your money so it doesn't carry as much risk for the bank, but they report on time payments, etc to the credit bureaus same as if it was unsecured credit.

Idk what kind of credit card I have, if it's secured or unsecured. I think it's unsecured.

So if I opened a new credit card and payed my car loan with it will help boost my credit score?

 

[Serious]

@Lt. Col. Tall

 

[hashmander]

Idk what kind of credit card I have, if it's secured or unsecured. I think it's unsecured.

So if I opened a new credit card and payed my car loan with it will help boost my credit score?

i'd recommend forums like this one:

Credit Scoring 101 - START HERE! - myFICO® Forums - 8169

 

[Curtis Nightfish]

paying off a car loan debt quickly won't help your score, in some cases it can hurt.

This is correct. Talked to a lot of people in the auto loan industry who say individuals come in with enough loot to buy the car outright and drive it off the lot. Or finance it and pay it off in under 6 months. All the while thinking this will make their credit look good. It doesn't.

You need to give it at least a year, preferably two. Best bet would be to put down 15-to-25% of the sticker price as the down payment. You can lock yourself into a 5 year, 60 month auto plan, but they will always accept more $$$ monthly so you can pay it off faster.

I wouldn't let the dealership provide their financing. Go directly to your bank and ask if you can get an auto loan.

Pay the car note off in 1 1/2 to 2 years and then look into buying a home. When buying a home they are going to question why the car isn't paid off.