Does a car loan affect credit score?

Yes, a car loan significantly affects your credit score. Initially, applying for a loan triggers a hard inquiry, which may cause a minor, temporary dip in your score. Once the loan is active, it impacts your score in several ways:

• Payment History: Consistently making on-time monthly installments is the most effective way to build and improve your credit score.
• Credit Mix: Adding an installment loan to your profile diversifies your credit mix, which can positively influence your score.
• Debt Levels: While it increases your total debt, responsible management demonstrates financial reliability to lenders.