If you have had trouble with your credit in the past, you may be wondering what the best ways to rebuild your credit is. One way is with a car loan. Just keep in mind, however, that it doesn’t come without a little risk as well.
The Type of Credit You Need to Improve Your Credit
When working on improving your credit, you want to be sure to have several different types of credit. This includes both revolving credit, which is a credit card, and installment credit, which is a car loan.
There are other examples of both, but auto loans rebuild credit faster than just about anything else. As an installment loan, you are making payments each and every month. Over time, this creates a history of good credit, but even though it is one of the fastest ways to improve your credit, it doesn’t happen overnight. There are a few steps you need to go through.
How to Rebuild Your Credit Using an Auto Loan
Before you can start to improve your credit with a car loan, you have to be able to buy a car. The terms and conditions and the interest rate you receive will be determined by your current credit score. You might not get the best rate, but you still want to do some work to get the best rate possible.
This means that even if your credit is currently poor, you want to check with sources outside of the dealership or subprime lenders. Both will charge you the highest interest rates. Instead, make sure you talk to a credit union. They tend to be easier to get a loan from even with less than perfect credit.
A regular bank can be more difficult to obtain a loan from, but it is worth asking before you go to the dealership. You can also look online to websites like BetterLoanChoice.com which offer personal installment loans that can be used to buy that new ride.
When you are offered financing, one of the most important things you can do is to ensure you do not buy a car that you can’t afford. You want a vehicle with a payment that you are comfortable with and that won’t stretch your budget.
Now that you have your new car, it is time to make the payments. This is truly the most important part of improving your credit. While auto loans rebuild credit, if you miss a payment or make a late payment, your credit can end up worse than when you started, and that’s the last thing you want.
Once you have been making your payments for nine to twelve months, you should see your credit score improve, but there is a catch. Even if you have been making your car payments on time, it won’t help if you don’t pay your other bills on time as well.
The car loan will only do so much. It must be combined with on time payments for all of your bills, or you won’t make any ground. You will also want to keep in mind that you don’t want too much debt as that can work against you. The car loan will add to your debt, so you want to have a plan to pay off other balances on your credit cards or lines of credit.
While it is true that auto loans rebuild credit, it is also true that a new car loan is only one piece of the puzzle. It is an important piece, but it needs to be combined with overall good credit practices. If you can do that, then you should see your credit score improve sooner rather than later.
This information was brought to you by BetterLoanChoice
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