DEAR SOMEONE ELSE’S MOM: The car I have been driving for the past three years since graduating college is the one my parents took over when my grandma could no longer drive because of eye trouble. It is a good car, but it now has a lot of miles on it and it really is a grandma car.
I have been in my current job for 7 months and I have begun thinking about replacing the car. My friends tell me getting a car loan is a good way to build credit, but I am nervous about taking on regular debt in addition to my college loan. Should I be? --- NERVOUS BORROWER
DEAR NERVOUS: Good for you to be concerned about taking on debt just to build credit. Car loans, like credit cards, are considered “bad debt,” but for most of us, these necessary evils are, well, necessary.
If your student loan is in your name and you’re staying on top of the payments, you’re already building credit by paying off “good debt.”
One widely recommended tool for young people looking to establish a healthy credit score is to begin with a secured credit card through your bank, credit union, or major credit card company. The beauty of this kind of card is that you can’t charge more than the amount of cash collateral required to open the account, which also serves as your credit limit.
Then, be patient about getting the new wheels. Since you don’t have a long or well-developed credit history, you’re likely to find the interest rates quoted to you will be a lot higher than if you take a few months – or better yet a year or more – proving you can keep current with the secured credit card and your student loan.
A double-bonus of waiting a bit to buy a car is that while you’re establishing credit you can also sock away more for a higher down payment, resulting in a smaller loan.