Credit can be a major roadblock to prospective buyers. Growing your credit can be a challenge for some, but can you use a car loan to build credit?
In the same way that there are different ways to build your credit score, a few factors influence the fluctuation of credit over time. FICO – the data analytics company that developed credit calculation from credit reporting agencies – lists payment history, amounts owed, length of credit history, new credit, and types of credit as some of the key influencers of your credit score.
Other ways you can influence your credit include your ability to make payments on time, the total monetary amount owed, how long you’ve held the loan or credit line, how frequently you open new credit accounts, and the mix in types of credit (credit card, installments, retail accounts, mortgage, auto loans).
A long-term loan like an auto loan can prove to credit institutions that you’re a ‘responsible borrower’ which is one of the significant premises behind the credit system. When applying for any loan, it’s important to get the best rate possible. While your initial rate may not be great, there is always the option to refinance your loan in the future once your credit has improved. Refinancing is the process of getting a new loan to pay off your existing loan. And, while new loans can cause your credit to briefly lower, a refinanced loan can significantly improve your interest rate. When deciding to refinance, wait until you’ve seen significant improvement on your credit and during a period of low interest rates for maximum effectiveness.
An auto loan can be a big step, but there are smaller, easier ways to build your score until you’re ready to use an auto loan to build credit. One of the easiest and most common ways to build credit is by paying down existing debt balances and using credit cards. If you’re new to credit, building a credit history with credit cards for small purchases and paying off your full bill each statement will get you well on your way! If you already have credit lines, paying off your existing debt down to 30% utilization is another great way.
Financing a car is a big deal. At Dells Auto, our financing options can get you back on the road while building your credit. A car is a necessity, and you can’t afford not to be on the move! While an auto loan isn’t a magic bullet for improving your credit, it’s one of several options you can use to work towards a higher score. Let our team help you achieve your dreams of car ownership and great credit!