Ok, here's the thing. I have had 2 credit cards for quite a while now, I've had the one for over a year now. I never let the balances on either go above 30%, and I ALWAYS pay them in full every month. I have never seen an interest charge on either.
I am in college, and am looking to purchase a house in the next 5 years. I also am saving up to buy a brand new car. I don't like the idea of financing a car, but how beneficial would a car loan be for my credit? I know if I got one and made the payments on time, it would skyrocket my credit, but would continuing what I'm currently doing with my credit cards be enough to get my credit worthy of a mortgage?
A auto loan is one of the best things people can do to build credit period.
Scores are 90% based on the last 24-months of history so if you finance a car for 36-months and pay it off in 24-months your score will skyrocket.
Mortgage companies look for good installment payment history simple because that's what a home is.
Credit card history while generating a great score will not qualify your to buy a home.
Having purchased a new car in cash should help you get a mortgage as well. You can list it as collateral. Since you are so good at saving money, aim for a significant down payment in lieu of a significant credit history. Do you have a cell phone? That will show up on your credit report too.
Financing a car will hurt your credit from the start, but as you gradually keep making your payment on-time, it will slowly keep going up. And when 1 or more bureaus show that the car is paid off with a good payment history, it's extremely beneficial.
Back in June I financed an '08 4Runner through Toyota and even w/ a cosigner and $3,250 down, my TU FICO dove from 747 to 698. The main reason is taking on the $32K in debt. I've had the car for almost 5 months and my score has slowly crept into the 700's again w/ me making the payment on-time each month.
But yeah, when the bureau(s) show that you have had the car for awhile and you have a good payment history, it's gonna be beneficial.
It may give a little more depth to your credit history but will cause a minor hit to your credit score up front. It will give you a boost after the first year though. Financing a car could potentially cost you a lot of money in interest. It may not be worth the trade off. If you do decide to buy the car, finance only a small percentage of it. Get as big of a gap between the original loan amount and the balance as quickly as you possible can by making extra payments towards the principle.
Your best plan for buying a house in a few years would be to save up a really large down payment to avoid PMI and higher interest rates.
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