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Is a car loan considered open-end credit?
I was reading about open-end credit and closed-end credit can increase your credit score. Where do car loans fall in this—are they open- or closed-end?
Eric Schad · Updated on
Reviewed by Shannon Martin, Licensed Insurance Agent.
Good question!
Car loans
are not open-end credit, since open-end credit refers to accounts that you can spend and repay in various amounts as many times as you want. This category includes:- Lines of credit
- Credit cards
- Certain types of home equity loans
Conversely, closed-end credit is a type of credit where the funds are given to the borrower at once and then the borrower repays the amount in full plus interest over time. Also known as installment loans, closed-end credit examples include:
- Car loans
- Mortgages
- Some types of signature loans
Open-end and closed-end credit are two types of credit that make up your credit mix. By having this credit mix, you can improve your credit score more quickly than if you had just one type or the other.
Because you need both types of credit to drastically improve your credit score, getting just a car loan won’t necessarily improve your credit unless you already have open-end credit and need to add closed-end credit.
If you’re going to get a car loan to improve your credit, remember to budget for your car insurance. To get the best deal on the coverage you need, check out the
Jerry
app to compare rates from over 50 different carriers and get the best rate for your coverage.Best of luck with your loan!
View full answer
- Gregory R.
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