How a New Car Loan Can Help You Fix Your Credit Scores
The way you manage your car loan could serve as a proof that you are a person with reliable financial capability.
Is your credit score keeping you from getting a good interest rate whenever you apply for a car loan? Getting a copy of your latest credit report may reveal that you are suffering from a bad credit history.
It is estimated that about a third of U.S. consumers presently have credit scores that are lower than 601. Most of those individuals are not actually aware of their credit rating until they apply for a loan and obtain one with higher-than-expected rates. Although a bad credit record may not totally prevent you from getting an approval for an auto loan with attractive rates, you could be penalized by the much higher interest, which would make your loan more expensive in the long run.
It is never too late to fix your low credit score. However, you should understand that building and improving credit scores are endeavors that do not happen overnight. If you aim to obtain a credit score between 601 and 850, you should understand that doing so entails a strong financial discipline and patience.
“It is never too late to fix your low credit score.”
Generating a Positive Credit Score
In general, opening a new credit line is an effective way to generate positive scores that would counter the negative points in your credit history. However, if you make late payments or default on your new loan, it could make your score even lower than it was before.
If you have bad credit, there are a few credit lines that you can apply for, to increase your score. Some of them are in the form of secured, low-interest credit cards, which may be more practical when used for minor purchases. There are even small personal loans that you can use with the goal of generating a higher credit score.
Another way to increase your credit score would be to take out a car loan. If you don’t already have an installment account, a car loan could help boost your credit profile, as a portion of your credit score is based on the type of credit you have.
“Another way to increase your credit score would be to take out a car loan.”
Increasing Your Credit Score with a Car Loan
Is it a good time for you to buy a car? You know by now that despite having a low credit score, you can still get approval for an auto loan, but with a much higher interest rate. If you can make the monthly payment, getting a car loan could help boost your credit score. You just have to ensure you make your monthly payments on time and in full.
Once you complete your loan, you’ll also see an increase on your credit score. If you’re currently shopping for a car loan, you should be careful and avoid too many hard credit inquiries. If they’re within the same month, the hard inquiries will all generally count as one, but if they’re spread out, your credit score will be affected.
“Once you complete your loan, you’ll also see an increase on your credit score.”
If you’d like to see what monthly payment and car loan options you qualify for, be sure to try out our pre-qualification tool—it takes less than one minute and doesn’t hurt your credit score!
If you’d like further help with your car purchase, be sure to contact our team at [email protected].