Building Your Credit Score With a Bad Credit Car Loan

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Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

, Content Manager - October 28, 2020

It’s probably safe to say that most borrowers desire a good credit score. However, you don’t typically start out with good credit. Building up your credit score can take some work, but with an auto loan, you can begin to raise that three-digit number that determines so much of your buying power.

Building Credit With Car Loans

To improve your credit score, you’ve got to take on new credit and handle it well. Another important aspect of credit repair is making sure that the new credit is reported to the major credit bureaus. If a loan is reported, your on-time payments can build payment history and boost your credit score.

Bad credit car loans are installment loans, which impact all five facets of your FICO credit score: payment history, amounts owed, length of credit history, new credit, and credit mix.

Payment history makes up most of your credit score – a whopping 35% of it! The FICO scoring model puts so much weight on payment history because, typically, a lender’s biggest concern is whether or not you’re going to repay the loan. The longer you go without a missed or late payment, the better off your credit score is, which leads to a higher likelihood of getting better rates for credit in the future.

By taking on an auto loan, you can start to build a positive repayment history that lasts for years. Car loans typically last anywhere from three to eight years, which can do wonders for your credit if you make every payment on time.

Bad Credit and Auto Loans

People with lower than average credit scores can sometimes find it hard to get approved for new credit. New borrowers can also have a difficult time jumping into the world of credit because a lack of credit history tends to lead to a lower credit score. So, how do you improve your credit if a lender doesn’t give you a chance to take on new credit? Enter special financing.

Special financing is designed for borrowers with credit issues, no credit, or past credit bumps like bankruptcy. The subprime lenders that offer special financing tailor auto loans to fit unique credit situations.

Their qualifications for approval have a lot more to do with income and overall stability as opposed to credit. If you can meet a subprime lender’s financing requirements, you could be well on your way to rebuilding or starting your credit history on the right foot.

Qualifying for a Bad Credit Car Loan

To get on the road to special financing, there are some documents to prepare. Knowing what to expect is sometimes the hardest part of the financing process.

While every subprime lender varies in their specific requirements, there are some commonalities. Here are some subprime lending requirements you can prepare for:

  • Income – Provide proof that you have a minimum monthly income of around $1,500 to $2,500 before taxes. Computer-generated check stubs showing your income and year-to-date income work as proof.
  • Residency – Subprime lenders require that you have a stable residence that you’ve lived at for one year, or a three-year history in the same area. Prove your residency with a recent utility bill in your name.
  • Driver’s license – Must have a valid driver’s license that isn’t expired, revoked, or suspended. Your correct address must also be listed on your ID.
  • Phone – Subprime lenders require that you have a working phone, meaning a landline or contract cell phone. This can be proven by bringing in a recent bill in your name. Prepaid phones aren’t accepted.
  • Down payment – Subprime lenders generally require that you have a down payment of at least $1,000 or 10% of the vehicle’s selling price. A trade-in can also help meet this requirement.
  • References – If you qualify, you’re likely to need a list of five to eight personal references with their names, addresses, phone numbers, and possibly more information (depending on the lender).

Starting the process of collecting your documents can be the most tedious part. Keep in mind that your personal situation may create the need for more items. Remember, subprime lenders work with borrowers in all sorts of credit situations, and some situations require more documentation than others. Do your best to be open and honest with your lender so that the process can go quickly and seamlessly.

If you qualify for financing, you can begin building your credit for the better.

Where Are Special Finance Dealerships?

Finding a special finance dealership can be the trickiest part of getting a bad credit car loan that can repair your credit. There are lots of dealers, so how do you tell which ones are signed up with subprime lenders? Don’t worry, because we’ve got the connections you need.

Here at CarsDirect, we’ve assembled a network of dealerships that assist bad credit borrowers. Getting matched to a dealer that’s signed up with subprime lenders can start once you complete our free auto loan request form. We’ll look for a dealership in your area that has the resources you need to get into your next car loan.


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, Content Manager

Bethany Hickey is a Content Manager and Writer for Auto Credit Express, CarsDirect, and many other automotive blogs. She's a graduate from the University of Michigan-Flint, with a bachelor’s in English-Writing. 

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