It may feel impossible to get a car loan when you’re suffering from bad credit. Luckily, there are plenty of lenders out there who are willing to work with you and help you get the vehicle you need. On top of that, getting a car loan can actually help you raise your credit score. Even if the increase doesn’t happen overnight, a car loan can, in fact, increase your credit score quicker than you may imagine.
How Does a Car Loan Impact Your Credit?
Before we can discuss how to raise your credit score by getting a car loan, we need to understand how exactly a car loan impacts your credit in the first place. There are actually several different ways that bringing a new loan onto your credit report can change your overall number.
First, you’ll be diversifying your credit mix. Your credit score takes several factors into account, including loans like student loans, car loans, credit card debt, and more. Having several different types of loans on your credit report and paying them back successfully can help prove to creditors that you are a safe bet when it comes to loaning money.
You’ll also be adding a new line of credit to your account. Though you may experience a small dip in your credit score at first, you will soon see that your score increases as you continue to make your payments on time.
Hard Inquiries
As soon as you get your new car loan, you may see a small dip in your credit score. Don’t panic. This type of temporary drop to your credit score is the result of a hard inquiry. Lenders have to perform a hard inquiry into your credit history before they can give you a loan. If you haven’t applied for any new credit in a while, you’ll likely find that your score only decreases by a point or two.
Additionally, if you plan to shop around at several lenders to receive your loan, try to get all of your inquiries performed within a two-week time frame. In this situation, the credit bureau will only add one hard inquiry to your credit score, which will have a much lighter impact on your score than if you were to have multiple hard inquiries over a couple of months.
Typical Timeframes
There’s no hard and fast answer for how long it will take for your car loan and on-time payments to improve your credit score. However, you could potentially see an increase in your credit score right away, as long as you are doing your due diligence and paying on time every month.
Typically, you’ll start to see your score increase within a few days of your first monthly payment being processed. At this time, the total loan balance on your credit report will decrease, leading to an increase in your score. Over time, this same smart financial practice will continue to bring your score up.
You can even continue to see your credit score go up because of your car loan over the next few years. The longer that you successfully keep your car loan open, the longer your credit history will be, which is a good sign for creditors. You’ll also be decreasing the amount you owe as you continue to pay on time, and eventually, your car loan will not be considered “new credit,” which shows creditors that you are capable of maintaining proper loan payments over an extended period of time.
All in all, a car loan can stay on your credit score for 15 years or longer, so it’s vital to pay on time, every time.
Credit Score & Car Loan Best Practices
The ultimate piece of advice when it comes to increasing your credit score is to make your payments on time. After all the hard work you’ve gone through to secure your car loan and purchase your vehicle, you don’t want to fall behind on payments and risk negatively affecting your score! If you happen to come into some extra money, try to pay your car loan off if possible. Not only will you save yourself from those monthly payments, but you’ll also avoid hundreds or even thousands of dollars in interest.
If you ever come into a situation when you can’t make your payments, contact your creditors right away. Lenders are often willing to work with you as long as you take the initiative to pay what you can and make a new payment arrangement. Don’t avoid the situation, as it may wind up escalating.
It’s also recommended to avoid any other big purchases when you’re trying to get a car loan. Making additional large purchases could cause higher credit usage or other hard inquiries to be placed on your account, which could decrease your credit score and make it more difficult for you to qualify for a car loan in the first place.
Work with FA Financing
Even if your credit is less than perfect, you can still find a lender specializing in bad credit who will work with you to get the car you need and start building your credit back up. It can be difficult to approach lenders on your own, but with FA Financing by your side, you can move forward with confidence.
FA Financing has more than two decades of experience in helping those with poor or no credit get the car loans they need and get back on the road. We work directly with lenders to present your credit report in the best possible light, highlighting your strengths and proving that you are a worthy lender. Even if you’ve had multiple auto loans, multiple repossessions, or a recent bankruptcy, our team can help you find a loan that works for you. You’re so much more than just your credit score, and FA Financing helps lenders to understand your unique situation. It’s time for you to finally find the approval you’ve been looking for. Contact FA Financing today to learn more about our processes and to get started today!
