How to Rebuild Your Credit With a Car Loan
Whether you’ve been digging yourself out of bad credit after a few bad financial moments or just getting started as a borrow (aw, you're just a baby, look at you, you’re adorable), making car payments on an auto loan is one tried and true way to establish your credit score.
Because the fact of the matter is that the only way you’re going to rebuild your credit is by getting more credit. And one of the best ways to do so is by obtaining a car loan. Lucky for you, we're experts in not only finding you the best auto financing options out there, but we work with you no matter what your credit history - good, bad, poor, or none at all.
When lenders and credit bureaus look at your credit history, they want to see a mix of installment loans and revolving credit. Your credit score is calculated through a variety of factors, but lenders look at your payment history (which makes up to 35%) and diversity of your loans (10%). And if you maintain your payments and keep on schedule, you’ll probe to any potential lenders that you’re a responsible borrower (even one late payment can hurt your score). It’s important for lenders to see improvement or consistent strength in your credit usage; when car loan payments are made in full and on time, they have the capacity to greatly improve your credit score.
Obtaining a car loan is typically much easier because dealerships have many lenders that they work with – enough so that they can find an interest rate that will pleasure the customer, even if it might be a touch on the high side. Before you begin the process of shopping around for a loan, take a careful look into your financial situation to see if, first, you can afford the car. If you can't, getting a car loan just won't be feasible. Focus instead of paying down your existing debts until you can afford a car - otherwise, you may end up making car payments only to fall behind on other payments. It would just be a sad, soul-cringing cycle.
If your credit is only recently on the mend and you're doing a lot of ignoring your bank statements, it may not be the right time to splurge on your dream car. As you rebuild your credit, remember that you're unlikely to get the best offered rates from a lender, since you represent a high risl. To reduce the financial burden of high interest rates, consider bringing a down payment to the dealer, which will help you with your loan approval and your ability to not only pay back the loan, but get a car you've been eyeing. Once you've ontained your loan, make sure you make your payments on time.
So even if you think your credit may be bad, consider first how many types of loans you have. An installment loan is an auto loan, student loan, or mortgages, or, loans that are paid over time with a set number of installments. Revolving loans have no fixed number of payments, such as credit cards. Having a balance of the two will look appealing to your lender, because it shows you are capable of managing multiple accounts and loan types.