Whenever you apply for a loan, lenders will want to have to study your credit score first. Your credit score is a measure of whether or not you’ll be able to make the monthly repayments.
If you have a low credit score, chances are you might get rejected for loan applications to certain big-ticket expenses such as a house or a car. You must do specific actions to improve it, such as making timely debt payments, minimizing credit card use, and not getting new credit cards or loans.
There’s another way that you can improve your credit score that’s relatively unheard of: getting a car loan. Yes, we understand that it sounds counterintuitive since the primary way to improve credit score is by not taking too many loans, but it does work.
In this article, we’ll discuss how getting a car loan will improve your credit score. Read on below to learn more.
Understanding Credit Scores
A credit score is any number between 300 to 900. The higher the credit score, the better. Like any other loan, you need to be consistent in your repayments to show lenders that you’re reliable. Rejection often happens if you have a bad credit score, but some lenders approve loan applications despite having bad credit. The only catch is that interest rates are typically higher.
How Car Loans Improve Credit
About 35% of your credit score is based on your payment history, while 30% is based on the credit that you’re currently using. As long as you do well by paying on time, 65% of your credit score improves.
Simply put, your credit score is negatively affected if you miss your payments and rack up more debts. If you’re going to rely on a car loan to increase your credit score, then you must do the following:
Prioritize Other Financial Commitments
Before you apply for a car loan, it’s crucial to handle your other loans first and make their repayments. It’s not required to pay for all of them in one sitting, but it’s recommended to make the payments for any past or extended credit payments.
Save for a Down Payment
If you have a bad credit score, having a down payment can save you. It essentially reduces the total amount of money that the lender will loan to you, and you’ll also get better interest rates once you’re approved.
While some sub-prime customers are eligible for a zero-down payment car loan, the chances of being approved are lessened because the interest rates will increase.
Stick To a Budget
Before deciding on a car that you want, try to determine if you can afford the repayments. As much as possible, go for the vehicles with lower repayments so that you can still make the payments even if there are sudden expenses in the future. Besides, you can always get a better car once you’re able to—you just need to make do with your current circumstances.
Don’t Apply in Numerous Places
Most people apply for car loans to different lenders because of the belief in more chances of winning. This isn’t recommended because this will affect your chances of getting approved negatively. Numerous applications give lenders the impression that you shouldn’t be applying for them since you’re already applying for other lenders.
Getting a car loan is an excellent way of improving your credit score, as long as you make the repayments on time. If you don’t, your credit score will fall below more, making it harder for you to increase it. If you need help, never hesitate to seek the help of specialists!
Get Approved Canada has auto financing options available for different types of vehicles. We also offer loan options for applicants with bad credit, but we guarantee that everything is at a reasonable cost. Contact us today to learn more!