Getting a Car Loan Can Help Fix Your 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.


, - November 5, 2019

When you need an auto loan and have bad credit, you don’t have to choose between improving your credit score now or waiting until later. The fact is, you can get a car loan and rebuild your credit at the same time.

How a Car Loan Helps Your Credit

There are five factors that make up your FICO credit score: payment history, amounts owed, length of credit history, credit mix, and new credit. An auto loan gives you the chance to build on three of these items.

Due to their length, bad credit car loans gives you the opportunity to build credit through on-time payments for a long period of time. Since payment history makes up the largest chunk of your credit score (35%), this plays the most important role in rebuilding your credit.

The other factors it gives you a chance to improve include your credit mix and new credit. Each of these make up 10% of your credit score. Your credit mix is impacted by the fact that an auto loan is a type of installment credit, which adds diversity to your credit portfolio if you have mostly revolving credit, like credit cards.

New credit is affected because you’re taking out a new loan. In this case, new credit is considered a good thing. However, you have to be careful when you apply for new credit. If you apply too often, or apply for different types of loans in a short period of time, it could negatively impact your credit score and be a red flag to future lenders.

Other Easy Ways to Improve Your Credit Score

A car loan is just one of many ways to build credit, and it can be convenient to improve your credit score and get the auto loan you need at the same time. Sometimes, though, it isn’t in the cards.

If you’re unable to get a car loan because of your credit, there are steps you can take to improve your credit score before applying for a loan again. Here are four simple things you can do:

  1. Pay all of your bills on time – This is an extremely effective way to begin improving your credit score because, as we mentioned, payment history is the largest factor that contributes to your credit score. For an even quicker credit boost, Experian can make your on-time utility bill payments work for you by positively impacting your credit score.
  2. Clean up your credit reports – Any negative misinformation on your credit reports can drag down your credit score, so it’s important to check your credit reports regularly for errors. If you find an error, contact the reporting credit bureau to dispute it and have it removed.
  3. Pay off outstanding debts – You don’t have to pay off all your debts at once to impact your credit score. Start with the smallest debts you have in collections – even small accounts can make a big impact.
  4. Keep credit balances low – The closer you get to your credit card limits, the harder it is to build your credit. Your credit utilization ratio measures how much of your available credit card limits you’re using. The less you’re using, the better, but lenders typically look more favorably on borrowers who keep their credit card balances at 30% or lower.

Finding an Auto Dealer for Your Needs

When you’re ready to get the auto loan you need and begin building your credit at the same time, CarsDirect is here to help. We want to help you find a local special finance dealership in your area that has the proper lenders.

We help people like you get on the path toward credit repair through car financing every day – let us help you, too. Just fill out our fast and free auto loan request form to get the process started now.

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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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