Can I take out a loan and pay it off for the sole purpose of building credit?

The short answer is, yes.

The longer answer: the interesting thing about credit is that it matters not what type of loans or credit lines you have. A car loan is a great start, and that means you have SOME credit already. But you are wise to want to have more accounts to strengthen your credit history.

I run into the situation all the time at work where people get turned down for having no credit, and when I start to suggest ways they can quickly build some credit, they moan, "but I don't WANT to get into debt just to build credit!" You don't have to get into debt!

Since you already have one credit reference (your car loan) which is hopefully current, you can probably easily get a few more credit lines.

The easiest way to build credit, in my opinion, is to go the mall. It's easy to get store cards. For instance, a Target card, or a Gap card, or a JCPenney card... just pick a store you like! A store card cannot be used anywhere but that store (usually.) Buy something you would be purchasing anyways and you're not out any money... in fact, the store usually gives you a pretty good incentive to open the store card (like 10-30% off your purchase.) Go home and immediately sign up for the online management of your card and pay it off immediately. Voila: you have just created another credit line, and a positive reference on your credit history. It only takes seconds to get approved for a store card, whereas going to a bank and asking for a personal loan will involve a LOT of paperwork.

Cards will get deactivated for non-use, usually 1 year. Having cards getting closed can hurt your credit score, because it reduces the amount of credit available to you. I have a stack of credit cards that I don't really use but don't want to get closed, so I try to make a small purchase on each at least once a year to keep them open and active.

While having a lot of available credit is helpful to your credit score, opening too many lines of credit in rapid succession can hurt your score. Patience is a virtue when building credit. So if I were you, I would go to the mall and get 1 store card to start. Then in about 6 months, apply for a real credit card that can be used anywhere. Having a real credit card IS a good emergency backup as long as you can resist the temptation to use it for "fun" purchases, and it's smart to use it when traveling instead of cash, etc.

Just be sure that with a credit card or store card, use only a tiny fraction of the credit available to you. This makes up a large factor of your credit score. Charging $10 on a credit card that has a $1000 balance helps your score, but charging more than $300 on that same card may hurt your score. (Balance of 30% of less are healthiest for your score.)

Common sense would dictate that paying off a loan early would help your credit, but in reality it doesn't. On a credit report, there are really only three status conditions for a credit line: "Current/Never Late", " Current/Was XX Days Past Due", and "Past Due". So there is no difference between being current on payments and paying it off early. Both situations will reflect "Current/Never Late".

Hope that helps.

Yes, you can take out a personal loan which will build your credit. An installment loan builds credit by making payments over time. You need to pay on an installment loan for at least 12 months to do much for your score. Paying off an installment loan early does nothing to improve your score.

A better way to build credit is a credit card, even if you have to start with a secured card (you pay a deposit which is held as collateral against the line of credit). Use the card and pay the balance in full every month. This will build good payment history and avoid interest. In a year, you should be able to qualify for a regular card and/or convert the secured card to a regular account.

Do you already have a car loan?

That will be plenty.

A mix of credit is ONLY 10% of your score.

It would never make sense to pay for a loan just to get that 10%

And there is no guarantee that you could get an "A" in that 10% portion.

If you must make a loan - this is what I did.

I made a secured loan.

I dropped $1,000 into a 1 year cd.

At the same time, I asked the bank to make me a secured 1 year loan against that cd.

Pay a loan for at least 6 months - preferably a full year to reflect positive payments on your report.

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New rules will not allow you to get a credit card before age 21.

If you get one from your bank (if you are established), make sure you pay in full each month.

Carrying balances on credit cards only destroys credit.

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Any history of paying back a loan over time will help build your credit rating...but paying it back like in 1 month won't really help. Being 19, you are automatically assumed to be an extreme credit risk...even with a good job...so a secured credit card might be the only thing you'd qualify for without a cosigner. You may want to get a secured credit card and use that to establish your ability to pay on time

Yes, a credit card loan is best for that. Just get a credit card (student cards are easy to qualify for without credit history) and pay the bill each month in full, and you will have a credit history built up soon.

I wouldn't take out a car loan or such, because the interest rates are higher and it's a waste of money.

If your monthly tuition payment is only 9% of your credit line then by all means use your card to pay off the monthly school fee and then pay off the card in full when the bill comes. Using 10% or less of your line of credit in a billing cycle builds your credit the fastest. Since you don't plan on using the card for anything else, this will be a great way to build your credit.

yes, this can be done.

start with a credit card where you currently bank. the limit need not be large. they're fairly easy to get if you've been employed steadily for 6 months.