I’m thinking about buying a new car in the next 2 months. I’m also thinking of building a house in the next 6-9 months. I’ve read that acquiring new credit (i.e., the car loan) can hurt your credit score, making you less attractive to lenders.
So while I need the new car (and it would greatly help in building the house), I don’t want to screw my chances of being able to build a house. How much of a risk is this? Or will 6 months of on-time car payments only benefit my credit score?
toadspittle:
It is true that getting the car will make getting the construction loan more challenging. Vice versa would also be true.
Since the construction loan will probably be more challenging to get, or at least one heck of a lot more critical to you in terms of the interest rate, I reccomend the following:
You ask “How much of a risk is this?”.
When you ask that, you need to be aware that the entire credit-scoring system designed by Fair, Issac & Co is well-nigh a random number generator, and the results it gives follow a very rough pattern, but are effectively impossible for you to predict in this situation.
Now if you were thinking about letting 25 accounts go into collection status tomorrow, or declaring bankruptcy tomorrow… the results of those actions, in general terms, I might be able to predict.
Don’t know about how it affects your credit score, per se, but the people giving you the construction loan are certainly going to look at your debt load.
Basically, they say toadspittle makes $X a month. Of that, some goes to a car payment, some goes to a credit card, some goes to the student loan people, etc, leaving him with $Y a month. Then if $Y + our loan payment is too high of a fraction of $X (1/3? I don’t remember off the top of my head), then Mr. Spittle can’t afford to take out our loan so we’re not going to give it to him.
It’s generally good advice to not add new debt just prior to getting a major loan (mortage, construction, etc).
-lv
Yeah, we took out a consumer loan to buy a dishwasher while we were in the process of negotiating a mortgage and the mortgage broker was Not Thrilled with me. She was concerned we would be required to pay out the previous loan in full as a condition of receiving the mortgage, even though the loan repayments didn’t impact on our ability to service the mortgage.
I would definitely get the construction loan first. After you have the money, then negociate the car loan. It is easier to get a car loan.
FICO score are fairly predictable. If you are totally truthful to yourself, you should be able to determine the impact of another loan.
If you have zero debt right now and only have to pay for housing, you should be fine depending on how much of a vehicle loan you get.
LordVor is correct, your “score” doesn’t mean as much as your debt load. If already 70% of your money goes towards paying for Credit Cards and other loans, forget it. You might not even qualify for your construction loan!
But if you’re making good money and have no other debts, you could do it.
I wonder if you could call the construction loan people and ask them how they evaluate potental loans?