How An Auto Loan Can Help You Rebuild CreditBy Caitlin in Credit
Rebuilding credit takes time and persistence. There are many ways a person can achieve this difficult task, and one way that might surprise you is by purchasing a new vehicle.
Rebuild Your Credit With Auto Loans
When a person has a low credit score rating, it can be very tough to get a credit card or a loan through regular means. Obtaining a car loan is typically much easier. This is because car dealerships have many lenders that they work with, and enough that they can find an interest rate that will please the customer, even though it may be a little higher. Car loan lenders also know that their loans are secured by vehicles as well.
If you consider how credit scores are calculated, car loans are a great way to re-establish your credit score. History of payments make up 35% of your credit score, and diversity another 10% – meaning that having a car loan helps your credit grow in two different categories!
Another way a car loan can help you rebuild your credit is that your spending will not get out of control. This is an “indirect” way, but it helps nonetheless. The fact of the matter is that you need credit in order to build your credit rating. Car loans are not a form of “revolving” credit and therefore can help you build your credit without making purchases that are detrimental to your financial health. With an auto loan your payments are set at a certain amount each month, and you are not given access to any extra credit.
When you get an auto loan it is crucial that you make your payments on time every single month. Do not be tempted to use the grace period. A grace period gives you more time to make your payment. For example, your payment date may be the 15th, with a grace period of the 20th. This means you can actually pay the payment on the 20th without receiving a late charge. You should instead make sure you make the payment on the 15th and do not use this grace period, as in the long run it can affect your credit score.
Rebuild Your Credit With Car Title Loans
Car title loans are another way you can rebuild your credit and improve your credit score. Many people do not understand that they have a higher chance of being approved for a car title loan over a financial institution loan even if their credit score is very low.
Obtaining and paying off a car title loan can allow you to become eligible for traditional loans/personal loans. Poor credit can impact many areas of your life, such as getting a job, purchasing a home, or renting an apartment.
Many companies believe that if a person has a low credit score they cannot be trusted. For example, if you purchase a new home or rent an apartment you may not pay your payments on time each month or may not pay them at all. You will be what is considered a risk to these companies. A car title loan helps rebuild your credit because it shows creditors that you can make your payments on time. The loan provider reports a person to the Credit Bureau when they obtain a car title loan. They will again report to the Credit Bureau if this person make their payments on time.
If your payments are late each month this will be reported to the Credit Bureau, which means you should be very careful in this respect when obtaining a car title loan. For more information on missing payments on loans, click here.
In most cases, your car title loan will be approved within a few hours. This allows you to have extra money that you more than likely desperately need. This loan also shows that you can responsibly handle this money, and looks very good with the Credit Bureau.
Note also that with a car title loan you get to keep your car – your loan is simply secured against your vehicle. This works both ways of course – if you default on your loan, you risk having your car seized by the secured party.
Finally, these are a only few reasons why auto loans and car title loans can help you to reestablish your credit. If you are having problems obtaining unsecured loans, this is something you should consider. Contact us for more information.