How to build credit without a car payment?

I know you always recommend either buying a car in cash or paying off an auto loan ASAP. My husband and I have a small 3-year auto loan to build our credit, with about two years remaining. We don’t have bad credit, we just don’t seem to have long enough credit history for some reason even though we are 29/30. Otherwise we would have paid for the car in cash. We want to buy a house someday but are in no rush (at least 5 years from now). Are there other ways to build and improve our credit? We pay all of our credit cards on time and have no debt besides the auto loan.

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Hey @diwhitman!

Well, I would never borrow money to try to increase your credit score. It’s just falling into this crazy trap set by the banks. And remember, your focus should always be on your net worth score, not your credit score.

That said, I understand the realities of operating in the US and how having a good credit score can potentially help you get lower rates on mortgages and stuff. Out of curiosity, what is your credit score? (Rates are so crazy low these days, that if you have decent credit and a good job, I think you’ll get a great rate… no need to burn money to improve it).

Credit score is based on 5 things:

  • 35%: Payment history: Paying your bills on time is the most important thing
  • 30%: Amount owed: Having high limits on your credit cards, and a small amount owed helps here. (i.e. if you have a $2K limit and you’re at $1,998 it may look like you’re stretched thin)
  • 15%: Length of credit history: The longer the better. This is why it’s a good idea to never cancel your oldest credit card (unless it carries an annual fee, then cancel it and keep the oldest one with no fee)
  • 10%: Credit mix/number of accounts: Having different types of loans does help here… but I still think it’s bonkers to pay money to borrow money so that you can pay more money to borrow more money. Stop that.
  • 10%: New credit: Your score will drop if you take out a bunch of new loans at once… makes it look like you’re about to skip town.

So other than the 10% credit mix, I don’t think the auto loan really helps you. In fact, paying it off would likely improve your score based on “Amount Owed” going down. I have two open credit cards. I did temporarily have one car loan like 12 years ago. Otherwise I’ve never borrowed any money. No student loans, no mortgage, no nothing, except a couple of credit cards paid in full. CreditKarma gives me a bad score for the credit mix factor above, but my credit score still seems to hover between 780 and 800. I definitely don’t care if it improves. I’m focused on my net worth score.

So yeah, I’d pay off the car, request a credit limit increase on any of your credit cards, never cancel the oldest card, keep paying on time and not worry about it. :slight_smile:


I checked and my credit has been between 780 and 810. It was 800+ for the past few months before dipping recently for some reason and I’m still trying to figure out why. I noticed that one of my credit cards that I haven’t used since December 2018 closed itself, so maybe that’s why. Next steps for sure though: pay off car loan and request credit limit increase on credit cards as you suggested.

Yeah, your credit score is so high, you’re in the realm of “I wouldn’t waste a brain cell thinking about it”. It’s fine. Pay your bills on time and go on with your life. Focus on that net worth score. :slight_smile: