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I don't have much credit because I am young but I did recently purchase a car which I am paying 9% on. This seems ridiculously high to me and I was thinking about pulling out some of my stocks to pay for a chunk of the car. Will this conflict with my goal to build some credit?

Edit: I'm sorry, I have no idea why I wrote 12% when really I meant 9% (not that it really matters much).

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  • If you are interested in working on your credit score take a look at a product like myFICO. They will give you advice based on your situation and tell you how to improve. Credit score is primarily the average age of your credit accounts and using a lot less credit than you are approved for.
    – Phil
    Commented Dec 11, 2015 at 18:16

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Don't fuss about your credit score when you're paying 9%. Get rid of the loan as fast as you can. Period.

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  • I think that's too general of a statement -- if by getting rid of it you mean liquidate the stock. If you're young enough to not credit AND have enough stock to pay a good chunk of a car loan, you're probably looking at a gift. There are other implications to the stock sale, like taxes, future dividends, etc.
    – duffbeer703
    Commented Jan 6, 2011 at 3:39
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    I'm sorry @duffbeer703, I don't understand your remark. We're talking about a 12% interest rate, while the price of money in the USA is 0.25% and inflation is about 1.10%, you're throwing your money away on that kind of interest rate.
    – GUI Junkie
    Commented Jan 6, 2011 at 19:11
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No.

Credit scores are primarily built by doing the following:

  • Paying bills on time.
  • Continuing to do so for a long time.

To build credit, get a few major credit cards and a couple of store cards. Use one of them to make routine purchases like gas and groceries. Pay them on time every month. You're good to go.

I would hate to sell stocks to pay off a loan -- try finding a better loan. If you financed through the dealer, try joining a credit union and see if you can get a better rate.

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    A few + a couple sounds like way too many. Too many credit cards can damage your score, especially if opened in a short time frame, and it's certainly not necessary for good credit.
    – Matthew Read
    Commented Jan 5, 2011 at 22:29
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    I partly agree with @Matthew here. Having a Visa, MasterCard, and AMEX at the same time is not going to hurt your credit score, but start piling on a bunch of store cards and other completely unnecessary credit and you stand a fairly good chance of being labeled as a credit seeker.
    – Aaronaught
    Commented Jan 6, 2011 at 3:24
  • Frankly, that's nonsense. As long as you don't open them at the same time, having several open lines of credit (assuming you don't go on a charge-fest) is great for your credit and utilization ratios.
    – duffbeer703
    Commented Jan 6, 2011 at 3:36
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    Each time you open a credit card, you end up with a "hard inquiry" on your record that stays there for 18 months (IIRC, could be 24). An inquiry is a ding on your score, and some applications will be denied outright if you have too many inquiries - they'll even clearly tell you so in the letter of denial. So it's certainly not nonsense. Get a few cards, but not too many.
    – EboMike
    Commented Jan 6, 2011 at 10:04
  • @EboMike - I didn't say go out and sign up for 12 cards. The perils of "hard inquiries" is one of the bigger red herrings of credit mythology. If you open up an account every couple of months and have good payment history, you're fine. Find a credible resource that says otherwise.
    – duffbeer703
    Commented Jul 19, 2011 at 12:21
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1) How long have you had the car? Generally, accounts that last more than a year are kept on your credit report for 7 years, while accounts that last less than a year are only kept about 2 years (IIRC - could someone correct me if that last number is wrong?).

2) Who is the financing through? If it's through a used car dealer, there's a good chance they're not even reporting it to the credit bureaus (I had this happen to me; the dealer promised he'd report the loan so it would help my credit, I made my payments on time every time, and... nothing ever showed up. It pissed me off, because another positive account on my credit report would have really helped my score). Banks and brand name dealers are more likely to report the loan.

3) What are your expected long term gains on the stocks you're considering selling, and will you have to pay capital gains on them when you do sell them? The cost of selling those stocks could possibly be higher than the gain from paying off the car, so you'll want to run the numbers for a couple different scenarios (optimistic growth, pessimistic, etc) and see if you come out ahead or not.

4) Are there prepayment penalties or costs associated with paying off the car loan early? Most reputable financiers won't include such terms (or they'll only be in effect during the first few months of the loan), but again it depends on who the loan is through.

In short: it depends. I know people hate hearing answers like that, but it's true :) Hopefully though, you'll be able to sit down and look at the specifics of your situation and make an informed decision.

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12% is ridiculously high and routine for loans with no credit history, esp. from the dealer. I don't think though paying off would hurt your credit - you've already got installment loan on your report, and you have history of payments, so it shouldn't matter how long the history is (warning: this is kind of guesswork compiled from personal experience and stuff read on the net, since officially how credit score calculated is Top Secret).

If you have the loan and credit card with good payments, only thing you need to build credit is time (and, of course, keeping everything nicely paid). Of course, if you could find a loan with lower rate somewhere it's be great to refinance but with low credit you would probably not get the best rates from anywhere, unfortunately.

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