If you are struggling with bad credit chances are credit repair is always on your mind. Credit is needed to do most things, even when you are not looking for a loan. Your insurance rates, house qualifications, and even your job may depend on your credit history. If you are looking for a way to build your credit while also getting you to where you need to go Good Fellow’s Auto Wholesalers suggest taking out a car loan to help you meet your goals. If you are not sure how a car loan can help fix your credit, our short guide below can help.
How Credit Works
Since you need credit in order to get a loan, it can be confusing to hear that getting a car loan can help your credit. Understanding how credit works can better equip you to make choices that positively affect your credit profile.
Your payment history is listed in your credit report, this tells lenders or other companies how well you are able to follow a payment plan. There is a notation placed in your file every time you are late on a payment, or when a payment is missed. The more marks, the worse your credit history appears and vice versa.
How much you owe overall is also listed on your credit report. This shows companies if you are overextended compared to your income, or if you are able to add another payment comfortably. Lenders can also see if you have any accounts that have been placed or collections or in worse cases, had a judgment awarded.
Hard Inquiries & Getting A Loan
Anytime you apply for a loan, be it a home loan or a car loan, a hard inquiry is listed on your credit file. Hard inquiries have a negative effect on your score, however, they do fall off of your report after a year. It is common to shop around when looking for a car loan, and when there are several hard inquires of the same type within a 1 or 2 week period, they are converted into a single hard inquiry. This helps you avoid damaging your credit score greatly while seeking a car loan.
Using a Car Loan to Improve Your Credit
Securing and paying a car loan on time is a significant way to help improve a poor credit profile. It is important to remember that purchasing a car is a considerable commitment. It will increase your overall debt which will be listed in your credit report. While this isn’t a bad thing, it can affect future loan approvals from other lenders until the amount is paid off.
How a Car Loan Helps
Your credit score will decrease slightly right after being approved for a car loan, which is normal. Once you begin paying your car payments on time, your score will start to increase at a steady pace. Installment loans paid on time have a very good effect on your credit rating. Not only are they a part of a good credit mix, but they also appear as installment loans on your report.
How We Can Help
We are always here to help when you need advice or assistance in building your credit. Obtaining a car loan will help improve your overall score, but you also have to monitor the rest of your finances. Reduce your credit card usage and make sure to pay your bills on time. For more information about building your credit through car loans or to speak with us about securing a loan for your car, give us a call at 1 (855) 581-9590 today.