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I just graduated and I'm about to start a new job in the US in September. I haven't had a credit card before and I would like to finance a car, which is $34k. My monthly salary after taxes will be $5k and the down payment for the car is $5k. So my plan is to pay the down payment after a month and until then drive one of my parents' cars.

I am planning to open a credit card once I get my first pay check. I am new to this so I would like to ask the following questions:

  1. Since I have an offer now, can I open a credit card before my first pay check by showing the bank my offer? Would opening a credit card earlier be beneficial? Say I open it now and not 1.5 months later, would that be better?
  2. Would waiting a month more and paying $10k for the down payment be better for my credit score? Or does it not matter really?
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  • This may no longer be true: when you're living with your parents is a good time to apply for credit cards, because many companies will assume your parents will pay back any debt you can't even though they have no legal obligation to, unless they co-sign your application. Commented Aug 2, 2022 at 15:46
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    You can save $10k by looking for a car that costs $24k only. You can save even more by buying say a two year old car. Let someone else pay $10k for driving a brand new car for 2 years, and then you pay $14k for driving the same car for another 12 years.
    – gnasher729
    Commented Aug 2, 2022 at 16:14
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    And really, really look at the terms and conditions of the credit card. Credit cards are the most expensive way to get money.
    – gnasher729
    Commented Aug 2, 2022 at 16:15
  • With a recent uptick in rescinded offers I doubt banks will be as inclined to open accounts based on prospective pay. Qualifying for the car loan will be the bigger concern. Also, please don't finance a $34k car.
    – Hart CO
    Commented Aug 2, 2022 at 23:44
  • Convert $34k into time: That's 7 months of payment, maybe 8 or 9 months including the interest. You are trading 9 months of slavery for a new car - is that a good trade, in your opinion? Maybe you have no other option, or maybe you do have other options - are there used cars that only cost 3 or 4 months? Commented Aug 3, 2022 at 13:11

3 Answers 3

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  1. Since I have an offer now, can I open a credit card before my first pay check by showing the bank my offer? Would opening a credit card earlier be beneficial? Say I open it now and not 1.5 months later, would that be better?
  2. Would waiting a month more and paying $10k for the down payment be better for my credit score? Or does it not matter really?

The problem with getting two loans close together is that the first action can impact the second one. The second lender might say that you recently inc increased your amount of debt, and might decide to reject the loan application. This can be true even if you have a good score, but is even more likely if you have a thin file.

Of course the thin file may mean that they won't even approve the first application. They could decide that a co-signer for the auto loan, or the secured credit card is the only one they will approve.

Trying to get a credit card before having a couple of paychecks could be problematic. If your previous income and credit history don't support it they might limit you to a very small credit limit, or require you to get a secured card.

You need to decide which one is more important a car or a credit card, and do the things that make that possible, then wait some time before getting the other loan. You may find out that your income doesn't support the loan you would need for the car you want and have to find another car.

Please avoid asking for a family member to co-sign the auto loan, at best it can have no problems, at worst it can be a disaster.

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  • Sorry for the stupid question, but when you say two loans, do you mean the 1) credit card loan and 2) the auto loan?
    – use80085
    Commented Aug 3, 2022 at 9:38
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    The credit card is setting up what is essentially a line of credit. If you get a new card with a $5K limit, the auto lender will factor this new potential obligation.= into their approval process. Commented Aug 3, 2022 at 10:02
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You said that you have an "offer" for a credit card...is that a pre-approval or a prequalification? There is a difference.

Prequalification simply means you meet the bank's general underwriting requirements to qualify for an account, but that doesn't mean you'll actually get the card. You'll still go through the evaluation and approval process, and actual approval rates can be low because the bank is simply targeting a demographic that meets a set of guidelines.

Preapproval means the bank is extremely likely to open an account for you, but there's still a chance (small, however) that you'll be denied.

Either way, you will probably see a hard inquiry on your credit report, which can have a short-term negative effect on your credit score. The amount of that effect has quite a bit to do with what your credit file looks like now, and from what you've shared, you don't have anything there now, so inquiries will have a larger effect on you than they would on people with more established credit histories.

The point is, don't take on inquiries you don't need to, and try not to have very many around the same time. It can make it look like you're shopping for credit, and that can be a red flag for some lenders.

Another final point here - credit will be a bit of a challenge for you right now because you don't have any established credit AND you are just starting your first job. It would be helpful if your parents were willing to co-sign a car loan for you so that you don't get hit with a high interest rate. Most lenders who might approve you right now based on your circumstance will either require a high down-payment or a high interest rate because you would fall into a high-risk category. If your parents are willing to co-sign then you'd have a better chance at a smaller down-payment and less of an interest rate (assuming, of course, that their credit is good).

Take your time, research your options, and then make a move. If your parents are willing to let you drive one of their cars for a little while then maybe that would be a better option while you settle into your new job, save some money, and decide on how to get started in credit. Keep this in mind - if you're going to shop for car loans, do it in a short period of time. Credit laws require the bureaus to count multiple inquiries for mortgages and car loans in a 30-day window as one inquiry, so you don't have the negative consequence of each individual inquiry hurting your credit score. This lets you shop for the best deals before you decide.

Good luck!

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  • Hi thanks for the answer. So when you say to keep the hard inquiries in the same 30 day period, do you mean that it's better if I open a credit card and apply for a car loan in the same 30 day period?
    – use80085
    Commented Aug 6, 2022 at 22:11
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What you pay for the car will not affect your credit score significantly. You will have a slightly higher credit balance if you borrow more, which will have a slight negative effect, but probably not enough to make any practical difference. Your payment history and number of accounts have a much greater effect than balances.

I would pay as much down as you can, not because of the effect on your credit, but so that you have as much equity as you can and avoid going negative. Cars go down in value significantly, so the less you owe, the better your chances of avoiding catastrophic events like totalling your car and owing more than it's worth.

I would also use the shortest loan period that you can afford on your salary. It helps pay the car down sooner, reduces interest, and increases the equity.

For the credit account, I would wait until after you get a paycheck before opening a credit account. You might find that you're eligible for better cards that have no fees. It may also make a difference in your credit line and interest rate, but unless you plan to max it out or carry over balances (both of which you should not do), those won't matter. I would avoid the temptation to "chase points" at this stage in your life, as there will be many new expenses (especially with a car) that you may not plan for, and that increases the chance that you end up paying interest on your credit cards, wiping out any benefit of earning points. Use it for emergencies only for a while until you get your finances stable.

As a side note, a $34k car on a $60k take-home salary is pushing it a bit. The rule of thumb for a car payment is a MAXIMUM of 10% of your take-home pay, which would require a 5-year loan at 5% in your case. It would be much safer to finance a cheaper car over 2 or 3 years, and save up for the "nicer" car once that one is paid off.

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  • I disagree with almost everything in your answer.... But that's why I'm voting to close the question as soliciting opinions.
    – littleadv
    Commented Aug 2, 2022 at 17:31

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