Credit Builder Auto Loans: Rebuild Your Credit with Auto Finance

If you have bad credit and need a vehicle, a credit builder car loan gives you the wheels you need and the ability to improve your credit score. All you have to do is make all the payments on time, so it’s important to make sure your car loan is affordable.

Does a car loan create credit?

A car loan can help boost your credit score for two main reasons related to two of the five factors that make up your FICO credit score:

  • Payment history: Your payment history makes up the largest part of your credit score – 35% of it according to FICO. This factor examines past and current payment behavior on credit cards, loans, and other accounts. Making timely payments on your accounts is the best way to build credit, which is why a car loan is a great credit builder.
  • Credit mix: Having a variety in the types of credit you use and have used is another component of your credit score. FICO says your credit combination is 10% of your score. There are two main types of credit accounts: revolving credit, like credit cards, and installment credit, like a loan or mortgage. A car loan falls under the installment payment category, so it can add variety to your credit mix and help improve your credit scores if you pay it back responsibly.

If you have poor credit and need a vehicle, you can try paying cash for the car to avoid trying to get auto financing. However, you would miss all the benefits of a car loan.

How fast will a car loan increase my credit score?

Building good credit is like a marathon: it takes time, effort and determination to get there. A car loan can boost your credit score, but it’s a slow build accomplished over months and years of on-time payments while keeping up with your other bills.

Therefore, you’re going to want to plan your purchase to make sure you’re not overstretching yourself and that your payments are well within your budget. Here are some tips to consider if you need auto builder credit:

  • Budget: Plan your car buying budget by looking closely at what you spend each month versus what you earn. A good tip is to try to spend less than 10-20% of your monthly budget on all your car expenses, including fuel, insurance, and maintenance.
  • Financing an affordable vehicle: Once you have an idea of ​​a payment that fits your budget, be sure to stick to it. A car loan builder loan is not the time to get the car of your dreams. Think affordable, convenient and reliable as you work to improve your credit by making payments on time.
  • Have a deposit: Another good reason to plan ahead is that it gives you time to save up for a down payment. Having money to put on a car can help you get approved when your credit isn’t perfect. A down payment can also reduce the amount you need to finance, which lowers your monthly payments and the interest charges you end up paying.

The essential

Focus on making all your monthly payments on time, and you can improve your credit with a car loan. If you have bad credit and need a car loan, Auto Express Credit is here to help.

We connect car buyers to dealerships in their area who specialize in helping people with imperfect credit obtain new and used car loans. Our service is free and without obligation. Get started with confidence by submitting our auto loan application form today.

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