Posted on: 17 November 2017
Is your credit less than good right now, and are you looking for ways to improve it? If so, do you have the need to buy a car right now? Buying a car with a car loan can help you improve your credit score relatively quickly. Here is an explanation of how an auto loan can help you improve your credit score, as well as factors that must be present in order for this to work.
How an auto loan builds credit
You might think that taking out a car loan will harm your credit because it puts you in debt, but it can actually help your credit a lot if you handle it properly. When you borrow money to buy a car, you will get an installment loan. This loan will have a set payment amount and a set number of payments.
Each time you pay your current car payment, the lender will post the payment to the credit bureaus. Each time this occurs, it adds positive information to your credit report in the form of payment history.
Your credit score is based on a lot of factors, but a huge part of it is based on your payment history. In fact, over one-third of your credit score is based on your payment history. Every payment you make will make your payment history look better, and this will cause your score to increase little by little.
Factors that must exist for this to work
In order for you to use an auto loan to rebuild your credit, there are certain factors that must be present. Here are the two most important ones:
- The lender must report to the bureaus – Most car lenders report to credit bureaus on a regular basis, but there are some that do not. You will need to choose a lender that does this, and you can find out simply by asking the lender about this.
- You must make your payments on time – The other crucial factor that must exist is on-time payments. Paying your car payments late will not add positive payment history to your report. Instead, it will do just the opposite.
If you can find a lender that posts to the bureaus, and if you make your payments on time, getting a car loan will help your credit. If you are interested in buying a car right now and need a car loan, contact an auto loan lender today.Share