Rebuilding your Credit with an Auto Loan
Rebuilding your Credit with an Auto Loan
Posted on October 11, 2023
An auto loan is one of the best methods to help rebuild your credit! To help save your credit from being down in the dumps you need to establish positive credit habits, and utilizing an auto loan provides a big chunk of new credit that can help your rating. At Southside Dodge, we work with customers from any background of credit, and can help you rebuild your credit with a car loan, especially thanks to our connections to top quality financial institutions. Read on below and learn about how your credit score is calculated, how an auto loan can help your credit, and some steps you should take into the future.
What Affects Your Credit Score?
You’ve most likely heard of a credit score, but may not actually know what all goes into making it up. The following is a rough estimate of what constitutes your credit rating:
- Payment History: This makes up around 35% of your score, meaning that if you’ve had a history of missed payments, it’s a big knock against your score. Conversely, paying on time is excellent for your score.
- Debt Load: Concerning around 30% of your score, debt load covers the amount of debt you carry, comparative to your income and how much you use with how much you’re actually allowed.
- Credit History Length: About 15% of the overall comes from the actual length that you’ve had credit open. In general, the longer you’ve had credit accounts open the better.
- Credit Mix: Around 10% comes from the types of different credit you have. Whether that is an auto loan, credit cards, student loans, etc.
- New Credit Check: The final 10% or so comes from a new credit check if you’re opening up an account. This is a necessary evil, and a temporary effect.
How a Car Loan Can Help Rebuild Credit
If you have a bad credit score, a car loan can be the perfect opportunity to help you rebuild your credit! It might seem counter-intuitive, but the best way to rescue yourself from bad credit, and to build credit, is to take on new credit. It’s not a foolproof option, but if you get a car loan, change your habits and apply them to this new loan, you can help save yourself from credit issues in no time. A car loan helps by adding another loan to your credit score report within a mix of other types of credit, gives you a consistent loan to pay off to build payment history trust and one that allows you to pay comfortably within your means. Every payment you make on that auto loan means you’re slowly but surely rebuilding your credit!
Steps to Rebuilding Your Credit
It may be easy to understand in general terms that, yes, a car loan can help you rebuild your credit, but what exactly are the steps to put it into action and see results? Follow some of these tips to safely and confident build your credit up:
- Make Your Payments On Time: This is the big one, you need to be paying your credit off on time. And not just for a few months, you need to build that trust and show that you can be depended on to follow through with the payments when they are required.
- Take Out A Loan Within Your Means: We know you want to improve your credit score quickly, but it won’t do you any good if you’re struggling and paying above your means. Don’t take out a loan larger than you can afford, keep it within a comfortable range that you will actually be able to pay off, and so that you can easily meet the payments on time.
- Pay Off Your Debts: Don’t move your debts around from card to card, pay them off. It’s easier said than done, but it doesn’t have to be a lot, just slowly but surely pay them off and you’ll help improve your credit with that credit card debt gone.
- Mix Up Your Credit: It’s been previously mentioned, but an auto loan is just one piece of the puzzle, you should take on a mix of credit, within your means, to help diversify your credit and your ability to manage and pay them off.
How Southside Dodge Can Help You and Your Credit
If you’re ready to rebuild your credit, and need some assistance on the automotive side of things, we here at Southside Dodge can help! Our finance department is staffed with financial experts with years in the industry, and experience assisting people just like you through utilizing an auto loan that works within their means on a vehicle. It doesn’t matter if you have bad, okay, or good credit, we can assist with a rebuild, and do so with our tailored packages and strong connections to financial institutions here in Red Deer. If you have any questions about the process, please don’t hesitate to contact us!
Here are some quick Q&A's with Peter Ruppert:
Explore some blogs on some of our highlighted models here at Southside Dodge: