Can Refinancing Raise My Credit Score?

Get Car Financing
Even with poor credit.

By

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.


, - February 2, 2021

Refinancing an auto loan can do a lot of things for you, including the chance to raise your credit score through timely repayment.

How Refinancing Can Improve Your Credit

Refinancing in and of itself may not be enough to boost your credit score, but it does give you a better chance at success with your car loan. By refinancing to a more manageable loan term or interest rate, your monthly payments go down, making your vehicle easier to afford. A more affordable car loan often means the ability to make timely payments.

Payment history makes the biggest impact on your credit score. It makes up 35% of your total credit score, so every full, on-time payment can build toward a higher credit score.

Most often, refinancing is done to save the borrower money each month by making your auto loan payment more affordable. When you refinance, you're taking out a new loan on the vehicle you already have.

To do this, a lender pays off your entire loan balance and draws up a new contract that typically has a lower interest rate, a longer loan term, or sometimes both if you qualify. You can check with your current lender for refinancing options, but often borrowers refinance their auto loan through a new lender.

Qualifying for Vehicle Refinancing

In order for refinancing to help raise your credit score, you have to qualify in the first place. Qualifying for auto loan refinancing means meeting lender requirements which typically include:

  • Being current on your existing auto loan. Refinancing may be a good idea when you see a change coming in your financial situation that requires you to lower your bills. However, if you're already late with or missing a payment, you may have to consider other options such as deferment.
  • Vehicle value must be equal to or greater than your loan balance – meaning you can't be in a negative equity position.
  • The loan balance must fall within the refinancing lender's acceptable range. This varies by lender, so depending on where you go, your loan balance may be too high or too low to qualify.
  • The car itself must also meet the lender's age and mileage requirements. Like the loan amount, vehicles must not be too old or have too many miles on them.

Perhaps the biggest hurdle to get over in refinancing is that your credit score usually needs to be good to qualify. If you took out a bad credit car loan in the beginning, you may be able to qualify for refinancing if your credit score has improved since you first signed the contract.

Additional Credit Building Tips

While having a good credit score isn’t the only aspect of auto lending or refinancing, it's still a good idea to know where your credit stands and to work to build it daily. The good news is that credit building can become a habit that's easy to keep up with.

Here are four simple tips you can use to raise your credit score:

  1. Make all your payments on time. As we mentioned, payment history is the largest component of your credit score, so keeping up with all your bills creates a lasting foundation for credit health.
  2. Limit credit card spending. Using credit cards responsibly is a great way to build your credit. However, running up high credit card debt and only making minimum monthly payments can put you in a real bind. A good rule of thumb is to keep your credit card balances under 30% of your spending limits. This typically keeps you from paying excessive interest charges and still gives you room to use the card in emergency situations, and keeping the balances low improves your credit score.
  3. Clean up your credit reports. Finding out what's on your credit reports is the first step you should take in many situations, including refinancing. Review your credit reports for errors, duplicates, or simple inaccuracies to make sure something that doesn’t belong isn’t harming your credit score.
  4. Get a more affordable car loan. An affordable, manageable auto loan is another wonderful step to take on the road to a better credit score. If refinancing isn't available to you right now, consider trading in your vehicle and use its equity as a down payment on your next loan.

Raising your credit score can be as simple as paying your bills on time, but sometimes situations come up that can hit your credit rating hard. Things like job loss, medical bills, and unexpected moves can all take a toll on your credit. These things fall into a category called situational bad credit.

Lenders that work with lower-credit consumers understand that things outside your control can impact your credit score. This is why they use additional factors to get a deeper look at your actual ability, stability, and willingness to take on an auto loan. If refinancing isn’t in the cards for you right now, a subprime lender may be able to lend you a hand when you need a vehicle.

Need Help Getting Started?

If refinancing isn't the right track for you to take, you may want to consider getting into a car loan with lower payments. If your credit score is what's holding you back, consider a subprime lender through a special finance dealership. Rather than running in circles trying to find a dealer to work with, simply start here instead.

CarsDirect has a large network of special finance dealerships across the country that are signed up with the lending partners you need. Bad credit, no credit, and even past bankruptcy may not have to stand in your way! Fill out our free, easy online auto loan request form to get the process going.

Free Credit Score

Get your free credit score now! Get a copy of your most recent credit score.

Get Your Free Score

Auto Insurance

Get competitive quotes on insurance in your area.

Vehicle Warranty

Protect your vehicle and you could save thousands on auto repairs.

Get a Free Quote

Need a Car Loan?

It only takes a minute.

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.


Search New Cars by Loan Payment »

View estimated loan payments based on local rebates and financing offers.

Loan approval is not guaranteed and is subject to credit application and approval of the lender. Individual loan terms may vary. Use of this website constitutes acceptance of CarsDirect.com's Terms of Use, Disclaimer, Privacy Policy, and Cookie Policy.

Privacy Policy|Do Not Sell My Personal Information|Terms of Use|Cookie Policy|Disclaimer|
COPYRIGHT 1999-2021 MH Sub I, LLC dba CarsDirect.com