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 May 20th, 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 at least 18 years old, 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 at least 18 years old and a current resident of the US or Canada. Must be employed full-time or have guaranteed fixed income of at least $1,500/month.
myAutoloan.com Car Loans
Get up to four offers in minutes through one simple application. Multiple financing types available including new cars, used cars and refinancing.
550
24 to 84 months
Must be at least 18+ years old; have a Social Security number; make $24,000+/year; have no open bankruptcies.
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.
Capital One Auto Financing
You could qualify for a car loan of up to $40,000, but not all dealers accept this bank's financing.
Good to excellent credit
36 to 72 months
At least 18 years old, have a valid street address, have existing Capital One accounts in good standing. Car must be a 2006 model or newer with less than 120,000 miles.
Wells Fargo Auto Loans
Auto loans with high loan amounts to cover your car purchase or refinancing needs.
Good to excellent credit
1 to 6 years
Your income and assets must support your existing debt obligations and the desired loan amount.

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
CreditRepair.com
CreditRepair.com
Repair your credit online with CreditRepair.com or call directly 855-897-9466.
  • Repair your past
  • Monitor your present
  • Build your future
Sign up
Debt.com
Debt.com
Debt.com and Power Wallet have the tools to help you manage your money.
  • Get answers
  • Calculators & free budget tools
  • Self help
Sign up
CuraDebt: Tax Debt Relief Free Consultation
CuraDebt: Tax Debt Relief Free Consultation
FREE consultation 877-797-0209. 100% confidential. OBB member in good standing.
  • Get your free saving estimate
  • Experience of more than 15 years nationwide
  • Member of online business bureau in good standing
Sign up
The Credit Pros: Legal Credit Repair
The Credit Pros: Legal Credit Repair
We believe that fast credit repair is a personal issue that demands personal attention.
  • Help force the deletion of erroneous credit damage
  • Provide practical, honest credit advice when you need it
  • Help you set realistic, reachable credit goals
Sign up More info
Lexington Law Credit Repair
Lexington Law Credit Repair
Call now for a FREE credit report summary & credit repair consultation.
  • Remove incorrect listings from your file
  • Find out what is in your credit file
  • Personalized services
Sign up
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
Sign up
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
Sign up
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
Sign up
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
Sign up
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 writer and editor 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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