The keys to your recently purchased vehicle are more than just keys to a car. These keys open an entirely new perspective to credit. A car loan is an effective strategy for credit building. Especially if you have bad credit. This is because consistent on-time payments account for a significant portion of your credit score, making them extremely helpful in building trust with lenders.

One of the advantages of this strategy is that oftentimes, obtaining a car loan is easier than a regular bank loan. This is because car dealerships work with many lenders which allows them to find a financing alternative for every customer even if the banks say “no”. It is imperative to understand that with a car loan, same with all loans, it is important to commit to a repayment plan to ensure your credit score does not decrease. Here are a few ways a car loan can help you rebuild your credit:

1) Car Loans Help Build Credit History

Using a car loan to rebuild your credit comes with certain perks. Of course, the biggest benefit is rebuilding and increasing your credit score. With every timely payment that you make, you’re inching your credit score back up to where it could and should be. 

2) Car Loans Add to the Mix of Different Credit

Adding another loan account to your credit report in the form of a car loan can also positively impact your credit mix, which plays a role in your overall credit rating. Ideally, you want to have a mix of different credit on your credit report, including installment loans like car loans, as well as revolving debt like credit cards.

3) Car Loans Improve the Likelihood of Securing Other Loans in the Future

Not only will a higher credit score make it easier to get approved for a car loan, but it can also open the doors to other loan products too. Mortgages, personal loans, and credit cards will be much easier to secure with a higher credit score, which you can build by being diligent with your car loan payments. 

4) Car Loans Help you Budget your Money

Although this is an indirect effect, an auto loan can influence your financial decisions.  By budgeting the payment amount for your auto loan, you will have created structure around your financial obligations.  Having to allocate a percentage of your earnings towards your auto loan creates financial awareness. This results into better decision making and you will find yourself spending less on miscellaneous and unnecessary things.


1) Choose the Right Auto Loan Provider

When picking a loan provider it is imperative to conduct proper research to find a trustworthy loan provider. First and foremost, look at their years of experience and reputation, this says a lot about the company. Pick a company that cares about your interests and needs and that is willing to put in the time to find the best interest rate for you.

2) Avoid Using the Grace Period

A grace period is a slippery slope to go down. This trick can lure you into a poor habit. By relying on the grace period, you expose yourself to potential economic dangers in the future. Make a goal to pay off your loan on time and the full amount.

3) Leave Your Accounts Open

This is fundamental for showing financial responsibility to your lenders. Even if you have the money to close your accounts, leave it open for at least 8 months. Leaving an open account with proper repayments represents that you are able to pertain to your commitment and will help you obtain future mortgages and credits. Although rebuilding credit is a tedious and ongoing process, it can be achieved. With commitment and proper education, you can be on the way to new a credit score in no time. Apply for an auto loan to see the quick impact it could have on your finances. When applying for your auto loan, don’t forget all the benefits and advantages that come with it. Brand new ride and brand new credit score.

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