How an Auto Loan Can Actually Help Your Credit
If you are shopping around for a new or used vehicle, you may be interested in knowing how an auto loan will affect your credit score. Because borrowing an auto loan can affect your buying power for other things that you want or need, you should also know how an auto loan can actually help your credit score. Here are 3 things that a new auto loan can do to make your credit history look good.
1. Helps to Rebuild a Bad Credit Score
Shopping for a used or new vehicle with bad credit can be very challenging, especially when you are trying to buy the car of your dreams. Though this may be true, once you are approved for the auto loan that you want, you can use this new loan to your advantage. By paying all of your monthly car notes on time, you can begin to repair and rebuild your score. For instance, if the lender reports your timely payments to Experian, Transunion, and Equifax, your score will also begin to increase gradually over a period of time. In some cases, people have reported that their scores jumped several points immediately after accepting the loan.
2. Gives You a Chance to Correct many years of Bad Repayment Habits
The age that you receive your credit card and the knowledge that you acquire before applying for your first credit card can make a huge difference in your credit score. These 2 factors alone will often determine if you will live with a bad credit history that restricts you from buying your first vehicle or gives you the buying power that you need to buy your first car with ease.
Unfortunately, if you are an example of the restricted car buyer, your repayment history may not be the best. If so, obtaining an auto loan with bad credit may be a positive move for you. This is because the new auto loan will give you a chance to rebuild the way your history looks over a period of several years (i.e. 3 to 5 years based on the length of your car loan).
3. Improves Your Credit Utilization
Your credit score is made up of a set of criteria (i.e.debt amount owed (30%), length of credit history (15%), new credit (10%) and so forth. To improve your score, you need to have information in each to have a balanced mix. Therefore, when you are approved for a new auto loan, your score in this category can increase your overall credit rating.
If you want to know how an auto loan can actually help your credit, it is important that you do your research online. When you search for business sites on these related topics, you can find a lot of valuable information. According to newsworthy sites like Forbes and NY Times, an auto loan from the right creditor can help your credit in several different ways including repairing your bad credit history and your credit utilization calculations.