Credit repair using a car loan – Boost your credit score | finder.com

Did you know you could use a car loan to repair bad credit?

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How to rebuild credit and improve your credit score with an auto loan that works for you.

There are dozens of unfortunate circumstances that could lead you to a poor credit score. However, a successfully managed auto loan may be the turning point in your credit history that shows future lenders you can handle a long-term financial responsibility.

The only way to repair your credit is to show that you’re a trustworthy borrower, and even though it may take some if you’ve had a rocky credit history in the past, it’s possible to overcome the bumps in your credit history.

Credit repair using a car loan

There are two types of credit, revolving and installment. Car loans are a type of installment credit, which means that when you sign a contract, you agree to make monthly payments to repay a borrowed lump sum, plus interest and fees, in a set frame of time. Revolving credit is a product like a credit card, a debt that can get rolled over each month. Having both types of credit is a good thing.

A diverse credit portfolio is what you want on your credit report to show lenders that you’re a reliable borrower for both short-term and long-term financial commitments. And because the different types of credit you have account for about 10% of your credit score, taking on an auto loan can broaden your credit history and boost your credit score.

How to get the right auto loan to rebuild your credit

Before you start making plans for your first trip, you need to know how to shop for an auto loan that’s suitable for your situation.

You need to be sure that whatever lender you decide to do business with will report your credit activity to the credit bureaus.

If a lender isn’t reporting your on-time payments to the credit reporting agencies, your credit report won’t be polished by the successful management of your auto loan — this is a must for borrowers trying to repair their credit.

  • Woman thinking about loans
  • Budget. Figure out how much you can afford so you’re not borrowing money that you realistically can’t pay back.
  • Make a down payment. Save as much as you can to use as a down payment to obtain a loan with better rates and lower monthly payments.
  • Loan fees and rates. Not only do you want a low interest rate, but you also want to avoid excessive fees.
  • Flexible payments. Look for lenders that have no prepayment penalty that’ll allow you to pay off the loan early without being penalized.
  • Car choice. Now is not the time to buy an expensive car, but rather a practical and affordable one. You’ll have a better shot being approved for a vehicle that’s preowned or just a few years old. However, if you are shopping for a new car, remember that more expensive vehicles will have larger monthly payments — so don’t overextend your budget.

What credit score do I need for an auto loan?

It depends on the lender, however, it’s key to apply for the right loans relevant to your credit score. Borrowers with scores under 600 may think that a car loan is out of the picture for them, but there are many subprime lenders that’d be willing to work with them.

If you’re not applying for loans you’re eligible for, it may be difficult getting approved.

Compare bad credit auto loans

Rates last updated November 15th, 2018

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Unfortunately, none of the personal loan providers offer loans for that credit score. If you are in urgent need of a small loan, you might want to consider a short term loan.
Name Product Product Description Min. Credit Score Term of Loan Requirements
car.Loan.com Car Loans
Apply with a simple online application to get paired with a local auto lender. No credit and bad credit accepted.
300
Varies by lender
Must be a US citizen with a current US address and employed full-time or have guaranteed fixed income.
Auto Credit Express Car Loans
Get connected with an auto lender near you, even if you have bad credit.
300
Typically 3 to 6 years
Must be employed full-time or have guaranteed fixed income of at least $1,500/month and be a current resident of the US or Canada.
LightStream Auto Loans
Quick car loans from $5,000 to $100,000 with competitive rates for borrowers with strong credit.
Good to excellent credit
Flexible terms
Good or excellent credit, enough income or assets to afford a new loan, US citizen or permanent resident, 18+ years old
RateGenius Auto Loan Refinance
Connect with a network of over 150 lenders to refinance your car loan.
510
Varies
Income of $2,000+/month, vehicle has less than 150,000 miles, no older than 10 model years, loan balance is at least $10,000, debt-to-income ratio: less than 50%.
LendingClub Auto Refinancing
Lower your monthly car payments and save on interest through a fast and easy online application process.
Fair or better credit
Minimum of 2 years
Car must be less than 10 years old with fewer than 120,000 miles. Current loan must have a balance between $5,000 and $55,000 and at least 24 months left in its term.
MotoRefi Car Loan Refinancing
A car loan connection service for borrowers looking to refinance.
525
1–6 years
Must have an income of at least $2,000/month and have a vehicle with less than 100,000 miles.
LendingTree Auto Loans
Compare multiple financing options for auto refinance, new car purchase, used car purchase and lease buy out.
Good to excellent credit
Typically 1 to 7 years
Must be a US citizen and 18+ years old. Must have good to excellent credit.

Compare up to 4 providers

How to manage your car loan

A car loan is a practical option that can bump up your credit score, but it’s also another financial obligation you’ll be on the hook for. Here are some tips that may let you squeeze some credit score points out of your auto loan while possibly saving some money.

  • Make on time payments to improve your credit score

    Once you have a suitable car loan in place, stay on top of your payments. Being late or missing even one payment will be counter-productive to your goal. Make extra payments when you can, but don’t pay the car loan off too soon because it won’t do much to help repair your credit — it will only save you money on interest.

    Did you know about using autopay to never miss a payment?

    Most lenders allow you to use autopay to make regular monthly payments. All you have to do is set the date you want to make a payment and the funds are drawn from your bank account automatically.

    This is a foolproof solution for borrowers who often miss payments due to forgetfulness.

  • Refinance to save money

    It’s not uncommon for people who’re trying to repair their credit to get a car loan with unfavorable interest rates due to their credit standing at the time. By refinancing your car loan to one with a lower interest rate, you’ll have a lower monthly payment and pay less for the auto loan overall.

    Monitor your credit score to see if it’s improved from managing your car loan, and when it has, it’s time to shop for better rates. You’ll want to refinance auto loans with interest rates over 10% as soon as you can, but it may take some time before your approved.

Keep in mind that if you’re waiting for your credit history to improve, it can take at least 9 to 12 months of steady payments to make a positive impression on your credit report and score.

What are other alternatives to repair your credit?

Besides the actions you can take to maintain and improve your credit score, there are a few other ways other than a car loan to help you fix your credit history.

  • Audit your credit report for errors. Make sure to check your credit report and confirm that everything is accurate. If you notice any misinformation, get in touch with the appropriate lender or credit bureau to have it repaired or removed.
  • Debt consolidation. If you still have a number of outstanding debts, consider a debt consolidation loan. Having all of your credit bills in one account with one interest rate will make them easier to manage.

Use a credit repair service

Details Features
Self Lender — Credit Builder Account
Self Lender — Credit Builder Account
Savings account that helps you build credit.
  • No hard credit inquiry
  • Available in all 50 states
  • It typically takes 60 days for new accounts to appear on credit reports
Go to site More info
The Credit People
The Credit People
Professionals work with you to clean up your credit and raise your credit scores. Cancel anytime.
  • 7-day trial for $19
  • Get access to your credit reports
  • Most customers see results within 2 months
Go to site More info
CreditRepair.com
CreditRepair.com
Online credit repair service.
  • Credit report repair
  • 24/7 credit monitoring and alerts
  • Score tracker and analysis
Go to site More info
CuraDebt: Tax Debt Relief Free Consultation
CuraDebt: Tax Debt Relief Free Consultation
Debt relief professionals helping individuals and small businesses nationwide.
  • Free consultation and 100% confidential
  • 15+ years experience
  • Debt relief help for credit cards, medical bills and taxes
Go to site
The Credit Pros: Legal Credit Repair
The Credit Pros: Legal Credit Repair
Online credit repair service that gives free consultations.
  • Delete inaccurate information on your credit report
  • Practical, honest credit advice from professionals
  • Get help setting realistic, reachable credit goals
Go to site More info
Lexington Law Credit Repair
Lexington Law Credit Repair
Law firm that specializes in credit repair.
  • Remove incorrect listings from your credit file
  • Get free access to your credit report
  • Personalized credit repair services
Go to site More info
CreditFirm.net
CreditFirm.net
Professional credit repair service that can help you create a step by step action plan. Cancel anytime.
  • Free credit consultation
  • Over 15 years of credit repair experience
  • Get help optimizing your credit file
Go to site
Details Features
myFICO
myFICO
Get quarterly access to your most widely used FICO® Scores and a 3-bureau credit report
  • Get quarterly access to your most widely used FICO® Scores
  • Credit report change alerts
  • FICO® Score analysis
Go to site More info
Experian Credit Report
Experian Credit Report
Get your credit report and FICO score for just $1 with enrollment in Experian CreditWorks credit monitoring. Cancel anytime.
  • 3 credit reports
  • Track your FICO® score
  • Easy to use dashboard
Go to site More info
TransUnionCredit Report
TransUnionCredit Report
TransUnion credit score, monitoring and identity theft insurance.
  • Unlimited updates to your TransUnion credit score
  • Up to $1,000,000 in identity theft insurance
  • Personalized debt analysis
Go to site More info
Equifax Business Credit Monitor
Equifax Business Credit Monitor
Monitor your key business relationships to protect your company from losses.
  • Bankruptcy Alert
  • Derogatory Alerts
  • New Inquiry Alert
Go to site
GoFreeCredit.com
GoFreeCredit.com
$1 for a seven-day trial to get access to your credit score and credit report from TransUnion.
  • Credit reports from all 3 bureaus
  • Email alerts when your credit report changes
  • Up to $1,000,000 in identity theft insurance
Go to site More info
Debt settlement and Bankruptcy

Unfortunately, not everyone is in the same boat when it comes to credit repair. If you’ve exhausted all of your options and you believe your credit is irreparable, debt settlement or bankruptcy may be an alternative to consider.

Just know that once you go down either of these roads, it’ll be a uphill battle that could take years to get your credit score back to status quo.

Bottom line

While the task may seem overwhelming, you do have opportunities to repair your damaged credit. A good place to start is with a car loan if your current financial situation can handle the new expense without overdriving your budget.

Once you show that you’re financially responsible enough to handle long-term credit like an installment loan, other types of credit products will likely be easier for you to obtain down the road.

Want to have a better understanding of car loans?

Kyle Morgan

Kyle Morgan is a producer for finder.com who has worked for the USA Today network and Relix magazine, among other publications. He can be found writing about everything from the latest car loan stats to tips on saving money when traveling overseas. He lives in Asbury Park, where he loves exploring new places and sipping on hoppy beer. Oh, and he doesn't discriminate against buffalo wings — grilled or fried are just fine.

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