Building credit via car note?

[Milton Clay]

should I pay off a car note to build credit or use secured loans to build credit quickly? Not a fan of car note because it will slow down my down payment savines but if it will build credit that I will need later I guess it's not to bad an idea, thoughts anyone?

[Bryan Kunka]

Hey Milton, I am a credit person.

Paying off your installment car loan will hurt your score. If you are trying to improve your score, then keep your installment loan going and open a credit card (which is considered revolving debt...which is rated differently on a credit report from installment debt) and keep very low balances (ideally under 30% of the card limit, but more ideal is under 10% of the limit.)

Unfortunately in order to build credit, you need to show you are financially responsible to pay your bills over a long period of time - that's why it's a bad idea to pay the car off early even though it's the financially responsible thing to do. Plus installment loans are generally viewed better on a credit report.

You can use CardMatch.com to pick the right credit card for your personal situation and you can use Quizzle.com to look at your free credit report and score. Neither of those sites impact your credit score because they do a soft pull on your credit.

Other than that, don't open up too many credit cards at once (maybe 2 cards total), because too much at once impacts your score in a few ways (hard inquiries, new trade lines, and age of credit history).

Last, pay your bills on time...late payments really negatively impact your score.

It takes time, but if you are proactive, you can speed the process up.

Good luck on building your credit!