Can a Bad Credit Car Loan Help My Credit?
Rebuilding your credit can take time but getting a new or pre-owned vehicle with a loan can make it a little easier! If you have budgeted correctly and can make your monthly payments in full, on-time you are on the right track to raising your credit score! Before we talk about how a car loan can impact your credit, we should talk about how credit scores are determined. Your FICO score is the score most commonly used by lenders.
These are five components that make up your FICO score:
- Payment history (35%) do you pay all your credit bills on time each month?
- Amounts owed (30%) this is your debt to available credit ratio
- The length of your credit history (15%) how long have you been utilizing credit?
- Credit mix (10%) what type of credit accounts do you utilize? Installment loans, mortgages, credit cards?
- New credit (10%) have you recently applied for any new credit?
How does getting a car loan affect my credit?
Getting a car loan can affect your credit in good and bad ways. When you are applying for your loan, the dealership will run a credit history report for the lenders. This adds a hard inquiry to your credit report which can temporarily take a few points off your score while simultaneously adding to your credit report history which can have a positive impact! This is especially important if you have little credit history!
Making Payments on Time
A car loan can also positively impact your credit score if you pay your loan bill on time each and every month! Your monthly payments are reported to national credit bureaus, staying current on your loan by paying the full payment amount (or more!) each month and your credit will gradually increase. Remember, your payment history makes up 35% of your FICO score.
Paying Off Your Loan in Full
Paying off your car loan will also have a positive impact on your credit score! Once the loan is paid in full, your credit report will show a “paid in full” status! If your loan shows no late payments that loan will stay on your credit report for 10 years from the date it was paid off. Positive credit history is a great way to maintain a strong credit history and credit score.
Get Started with Mr. Ed of AZ
Ready to start boosting your credit score? Come on down to Mr. Ed today! The finance professionals on our staff are here to help you get a bad credit loan, in fact, we are the number one provider of loans for people with bad credit! We here at Mr. Ed pride ourselves on respecting the customers we work with, that means keeping your information confidential and only sharing it with lenders who approve your auto loan! Plus, there are no pushy cars salesmen here strapping you into a bad deal, you will only work with Loan Officers to get the right loan! We are so excited to work with you and help you start boosting your credit score!