Does a Car Loan Build Credit?

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Even with poor credit.

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - May 30, 2018

No… but you can build your credit using a car loan (ba-dum-bum!). But, seriously, a car loan is an excellent opportunity to get your feet under you, credit-wise.

Adding to Your Credit Profile

The main reason a car loan is a good way to build and improve your credit score is because, as you make payments on time, you begin to build a positive payment history. Payment history makes up 35 percent of your FICO credit score, which is the score most commonly used by lenders.

Auto financing also adds to your credit mix and new credit, which make up a combined 20 percent of your credit score. So, by getting a car loan and keeping up with your payments, you’re impacting more than half of the things that influence your overall FICO score.

Is There a Faster Way to Improve My Credit?

The fastest way to improve your credit is to be a responsible consumer. Paying all your bills – not just your car payment – on time and in full each month can help improve a bad credit score. Nothing can turn your credit around overnight, but using credit responsibly and building diversity in your credit profile will certainly help.

In addition to making your payments on time, here are a few tips to help your credit improve sooner:

  • Don’t close your credit cards. In order to have a solid credit profile, you need a solid credit history. So, keeping a few credit cards around that you’ve had the longest will help…
  • …As long as they’re not maxed out. Lenders like consumers to keep the amount of their available credit use to 30 percent or less. This shows that you’re both using your credit and paying your bills.
  • Keep a mix of both installment credit, such as car loans and mortgages, and revolving credit, such as credit cards…
  • …But don’t apply for too much credit all at once. It could be a red flag to lenders if you’re applying for everything in sight, instead of just the credit you need.

Use these tips to your advantage, and remember to monitor your credit reports and score as well. Accuracy is important. Removing incorrect information from your credit reports can also raise your credit score.

The Bottom Line

All in all, getting a car loan and making your payments on time is a great way to improve your credit. Plus, you don’t have to worry about credit that’s seen better days standing in your way if you use CarsDirect! We know that in order to get the financing you need, you need a lender that can work with challenging credit situations. And these aren’t lenders you can just walk off the street and get a direct loan from.

However, they’re lenders that work through special finance dealers, and we work with a nationwide network of those very same dealers. Let us take the hassle out of finding the right dealer for your situation. Simply fill out our no-obligation online auto loan request form to get the process of finding a local dealer started today!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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