‘I really don’t want to wait super long’: I want to improve my credit score but don’t want to wait forever. How can I boost my score quickly after paying off my loan?

Hi Money Minder,

So here’s the deal – I bought a car and put half down. I totally could have put it all down, but my credit score took a hit because I haven’t taken out any loans since paying off my student loans. I have a credit card, but I guess I need a loan to show I can handle it.

I vaguely remember a banker mentioning I should wait 6 months before getting a loan, but someone else said a year. I just want my credit score to chill and see that I’m responsible with payments.

I really don’t want to wait forever because I’m basically throwing money away just to make some credit ghost happy. Also, I heard there’s no penalty for paying off a loan early. Can you confirm that?

Thanks for your help,
Car Enthusiast

Response from THE MONEY MINDER:

Hello There,

Congratulations on purchasing a car and being able to afford a significant down payment! It’s great that you are proactive about managing your finances and considering the impact on your credit score. I understand your concerns about waiting to build your credit history but also not wanting to pay unnecessary interest just to prove a point to the credit bureaus.

In your situation, it’s true that having a mix of credit types, including installment loans like car loans, can positively impact your credit score over time. However, there are alternative ways to show creditworthiness without taking on unnecessary debt. One option could be to use your credit card responsibly, making timely payments and keeping your credit utilization low.

As for the timeline for taking out a loan, the specific advice can vary depending on your financial institution and individual circumstances. Generally, it’s recommended to wait at least six months to a year after opening a new credit account before applying for a loan to allow your credit profile to establish and show consistent payment history.

Since you mentioned there is no penalty for paying off your loan early, you could consider taking out a small personal loan or a credit-builder loan and paying it off within a few months to demonstrate your ability to manage credit responsibly. This can help boost your credit score without accruing unnecessary interest payments.

Remember, building good credit takes time and consistency. By being proactive and making informed financial decisions, you can gradually improve your credit profile while avoiding unnecessary costs. All the best from THE MONEY MINDER.