Getting a loan to buy a car is not extremely hard to do if you have bad credit; however, your interest rate might be higher than what you would like. The good news is that auto financing is available to people with all types of credit, but the better news is that getting a car loan can actually help you improve your credit score. If you have bad credit, need a car, and want to improve your credit score, here are several things you should know.
How Can You Get a Car with Bad Credit?
A person with excellent credit can get a car loan with a really low interest rate in most cases, while a person with bad credit may be able to get a loan but with a higher interest rate. Auto loan lenders base approvals and interest rates on risk, and lenders assume a higher level of risk when offering loans to people with bad credit. If your credit is bad, you may want to look for a car dealership that offers loans to everyone. Yes, you will pay more for the loan, but getting the loan could actually help you boost your credit score.
How Will a Car Loan Help Your Credit?
If you want to boost your credit score by getting a car loan, there is one important factor you must realize; you must make all your payments on time. Your credit score is made up of a variety of different things, but 35% of it is based on payment history. When you get the loan and make your payments on time, you will slowly be building a positive payment history. After just a few months, this could make your score increase. Any type of installment loan (when paid on time each month) can help you build a good payment history because you will get a positive post to your credit report every month.
What Else Can You Do to Improve Your Credit?
While paying a higher interest rate on a car loan may seem like a bad idea, it doesn't have to b if you handle this properly. If you can make all your payments on time and work on other ways to rebuild your credit, you might be able to refinance the loan in a year or two. Once your credit score is high enough, you could qualify for auto refinancing that is at much lower rate than the rate you are currently paying.
Getting an auto loan and paying it on time each month is a great way to begin rebuilding your credit, but there are other ways, too. Here are some tips that could help you drastically improve your credit score in only one year:
- Dispute all inaccuracies. Getting a copy of your credit report is vital if you want to improve your score, and you should request a copy from all three major credit bureaus. Once you have the reports, scan them over carefully to look for any inaccuracies. If anything on your report is not correct and is harming your score, dispute it. The credit bureaus are legally required to investigate all disputes they receive, and they must correct them if they are wrong.
- Pay everything else on time. If you have any other debts, such as credit card bills, make every payment on time. This can help you build positive payment history.
- Open new accounts. Adding new accounts to your credit report will also boost your score—as long as you don't rack up a lot of debt.
- Pay off balances owed. Another major part of your credit score is the amount of money you owe. This makes up 30% of your score, and a good way to improve your score is by lowering the balances on your debts.
After consistently working on your credit score, you should easily be able to refinance your auto loan and receive better terms within a few short years. If you have bad credit and want to improve your credit score, start shopping for auto financing today. To start, try speaking with a representative from an establishment like Western Avenue Nissan.
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