How a Car Loan Can Help You Rebuild Credit
Xtreme Auto and Truck Sales can help you rebuild your credit. Rebuilding credit takes time and persistence. There are many ways to achieve this difficult task, and one way that might surprise you is by buying a new vehicle.
Rebuild Your Credit With a Car Loan!
When a person has a low credit score rating, it can be very tough to get a credit card or a loan through regular means. Obtaining a car loan is typically much easier. This is because car dealerships have many lenders that they work with, and enough that they can find an interest rate that will please the customer, even though it may be a little higher. Car loan lenders also know that their loans are secured by vehicles as well.
Here are a few tips for making sure your car loan rebuilds your credit:
1. Assess your financial situation
Using a car loan to rebuild your credit is a sound financial decision-if you can afford the car. If you can’t afford to take on more debt, getting a car loan will not be the answer. Focus instead on paying down existing debts until you can afford a car.
If you are financially ready to take on a car loan (and perhaps a revolving line of credit, too), don’t open multiple new accounts at once. Three or more active credit accounts are enough for most credit agencies to see a diverse credit stream. Opening several accounts within a short time period can be a warning flag to credit agencies, which interpret those as actions of someone too eager-perhaps even reckless-to expand their access to credit.
2. Choose the right vehicle
If your credit is only recently on the mend and money is still tight, it may not be time yet to splurge on your dream car. After all, steady payments on a used car get reported each month just as they do on a new car.
One of the reasons that a car loan is more accessible for many with shaky credit is that dealerships benefit from selling cars, and they may be willing to take on slightly more risk than a traditional bank, which doesn’t benefit from a car moving off a dealer’s lot. Dealers also work with many lenders, increasing the chances of finding a lender who not only will approve your loan, but will approve it with an interest rate you can afford.
3. Make your payments on time
Once you’ve secured your auto loan, nothing is more important than making on-time payments. Consistent, on-time payments are the best way to reinforce your credit worthiness and build your credit score. You can ensure on-time payments by setting up an automatic withdrawal through your checking account. You’ll save time and stress, and guarantee that you’ll never miss a payment.
Even within six months, a history of on-time auto loan payments can begin to show progress in your credit score. While paying off your car loan early may be an option-and seem like a good way to show responsibility-each month you make an on-time payment is a valuable addition to your credit file.
We hope these credit rebuilding tips have been helpful. If you’re wondering whether you qualify, or would like to get advice on your unique financial situation, just contact us, or fill out our online credit application.
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