How Getting a Car Loan Helps Build your Credit
If you are struggling with rebuilding your credit, you must know that it will really have to take time because it can be a difficult thing to fix. You need to be very patient and persistent about.
The good news is that there are actually several options and ways by which you can make it happen, and one of these is something you would not really expect – purchasing a new car with a car loan.
So how do you rebuild your credit with auto loans?
It can be a bit difficult for a person with low credit score to avail of a loan, but when it comes to getting a car loan, it is actually much easier. And this is something that many people are not aware of – that it is possible to get approved for a car title loan despite a low credit score. When you get a car loan, many things begin to become much easier. There are many advantages and privileges that you can get out of it like becoming eligible for personal loans. Even if you have poor credit score, it will be a lot easier for you to do a lot of things like renting an apartment, purchase a house and others.
People with low credit score have to deal with many struggles because several companies feel that these people are difficult to trust, but when you get a car loan, it will help establish your credibility and therefore help your credit score because it is one way for you to show that you can make on time payments. However, you have to be very careful and make sure that your payments are done on time because reports will be submitted to the credit bureau.
When it comes to processing the car title loan, it should not take more than a few hours which means that it is something that is really very convenient for you especially when you need this money badly for your vehicle purchase. If you become very responsible when it comes to handling this money, it will result in a positive impact on your credit reports in the credit bureau.
If you have an auto loan approved, expect that it will have an impact on your credit report and your credit score.
What your credit reports will show are the summaries of the payments you make on a monthly basis for both closed and open accounts, the companies which have taken a look at your credit report, as well as the settlements you owe.
On the other hand, your credit score is what’s going to show how reliable you are as a borrower and can be computed using a formula based on the information that can be found on your credit reports. If you can maintain on-time payments on a monthly basis, then you have a good chance of having a higher credit score.
Here is how your auto loan will appear on your credit report:
There are two categories that you need to look at so that you do not feel overwhelmed by the information on your credit report:
- Type of account. In your credit report, the auto loan is usually classified as an installment account, and if you do not have anything else under installment accounts such as student loans and mortgage loans, then you can have a better credit profile, provided that you make on time payments.
- Current status. Your credit report will also show the status of your car loan. You should see if it is current if you regularly make on time payments. It is very crucial that you stay current on your payments because it can significantly impact your scores. Be careful not to fall behind or you will ruin your good credit and your car may be in danger of getting repossessed.
As much as possible, it is always best to make your car payments on time but if that is not possible, your credit score may be at risk and you do not want to take the hit for it. Just make sure that you are careful not to ruin your credit by discussing your options with your lender, in cases when you cannot afford your car payments anymore.