How To Rebuild Your Bad Credit With a Car Loan
If you struggle with bad credit, your opportunities may seem limited. Often enough, a bad credit score accumulates as a result of one too many late payments, poor financial budgeting or overspending. Your credit score is a good indication of your intent to repay borrowed funds, and if the score is negative, this could sway credit lenders to reject your request for a loan. A poor or bad credit score is one that falls at or below 619 on the FICO score. Whether you need help paying for a mortgage or a new vehicle, people with bad credit face a bigger challenge than those with a great credit history, because they are considered a higher risk to lenders. In the long run, it could impact your ability to qualify for the loan you need. However, due to flexible and affordable leasing rates, you can actually fix your credit score and build your way back to good credit with the help of a car loan. We’ve outlined 5 steps to get you back on track to a solid credit rating.
Understand Your Credit Report
It’s always a good idea to know where you’re at financially. Your credit report is available to you so that you are able to see where you need to improve. Are you making too many late payments? Are you accumulating too much debt? It’s important to keep an eye on your credit report in order to establish a rhythm and find red flags of your own before they spiral out of control.
Craft a Repayment Plan
If you’re aware of any outstanding debts, rather than avoiding the situation, it’s best to make a plan and start repayment. Your payment history is single-handedly the biggest factor of your credit score and it’s important to keep it in good standing. Falling behind on payments won’t help your credit situation. If you’re struggling to pay the amount in full with each billing cycle, paying the minimum amount on your statement will at least keep you from being further affected. Contact your creditors and make sure they are aware of the situation--chances are, they will help you work out a repayment plan that works for you. Going forward, always try to pay your bills on time, including non-credit bills like utility and rent. Any late payments on either of these can also be reported to the credit bureau and thus negatively affect your credit score.
Use a Secured Credit Card
Unlike a regular credit card, a secured credit card forces you to keep money in a savings account as a means of collateral. Since there is already money sitting in your account, lenders are more likely to approve you for the loan you need. You can always revert back to an unsecured, or regular credit card after using a secured card if you stay within your allotted balance and make your payments on time. Remember, whichever card you choose to stick with, getting a card just to “free up” your financial assets is never smart. If you don’t have the money, don’t spend it!
Consider an Installment Loan
A secured credit card can help you apply for other loans. Part of your credit score is based on the types of account you have. There are two main types of account: rotating and installment. A rotating credit account is like a credit card or a home equity line of credit, where you have an available limit and you free up more funds as you pay down the loan. An installment loan has a set term and a set payment. Auto loans and mortgages are installment loans, which means an auto loan could essentially represent one-half or one-quarter of that account. It’s important to be careful when applying for an installment loan because too many could damage your credit score. At Castlegar Toyota, we can help you get an automotive loan with low-interest rates and flexible repayment plans. Let us show you why taking out a car loan with bad credit is actually a good idea.
Take Out a Car Loan
While it might sound slightly crazy to purchase a new car when you’re already struggling with bad credit, an installment loan, such as an automotive loan, will actually help you improve your score. Applying for a car loan with bad credit is beneficial due to the length of the contract, which will reinforce the idea of making monthly payments for a prolonged period of time. As long as you remember to make your payments on time, creditors will be able to see your commitments to repaying borrowed funds, and your score will be on its way up. Since your overall credit score is composed of many different types of credit, having an automotive loan also gives you a good mix of credit on your report. As outlined above, credit ratings don’t just go by what you put on your credit card. Utility bills, rent, and even tuition are blended together to produce a credit score. The overall goal is to mix up your credit with different types of loans, so you can increase your credit history and at the same time, fix your poor credit score. That car loan not only shows a new mix of credit, but also will help improve your overall credit report in the near future.
Do you suffer from bad credit, but need access to a reliable vehicle? Connect with our credit specialists today and learn more about our flexible leasing programs. We offer pre-approved auto loans on all of our new and pre-owned vehicles. Regardless of your past or present credit situation, we promise to get you the car, truck, or SUV you’ve got your eyes on. Call us today at 1-(877) 969-1929 for more information, or contact us online.
