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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.
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.
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.
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 lenders willing to work with bad-credit borrowers. Also known as subprime auto loans, these tend to come with higher rates.
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.
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.
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.
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.
Besides the actions you can take to maintain and better your credit score, there are a few other ways other than a car loan to help you fix your credit history.
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 can be an uphill battle that could take years to get your credit score back to status quo.
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.
From auto loans and mortgages to reporting services, you can boost your score without plastic.
Find out how to rebuild your credit score and get another mortgage after foreclosure.
If a missed payment left a black mark on your credit report, a letter to your creditor could reverse it.
Offers a flexible three-tiered membership, but beware of customer complaints of fraudulent charges.
CreditRepair.com offers TransUnion credit monitoring as part of its credit repair package, but membership can be pricey.
Sky Blue Credit has a 90-day money-back guarantee, but you’ll pay out of pocket to get access to your credit report.
The Credit People offers professional credit repair services to help clean up your credit report before your next credit application.
Follow these 3 simple steps to remove errors, blemishes and defaults from your credit report to take control of your finances. Understand how black marks can impact your credit score and what you can do to repair your credit.
From loans to credit cards, learn why and when lenders list debts as default, what the consequences are and how to deal with credit default. It’s important to understand what a credit default is and how it can affect your credit score and report.
Rebuilding your credit report after bankruptcy takes time, but it’s doable. Develop healthy financial habits and use credit-building products responsibly to start to improve your credit score today.
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