How Do I Rebuild My Credit with an Auto Loan?

When it comes to rebuilding your credit it can often seem like a tough mountain to climb, with a lot of help needed to accomplish that herculean task. One of the best ways to rebuild your credit is by providing a large portion of new credit that can assist your credit score in continually rising, which is where an auto loan comes into play! Davey Auto Sales has decades of experience in the business of helping those out with a variety of credit histories onto a path toward rebuilding their credit through an auto loan and a vehicle to match. Read on with us as we outline how a car loan can help your credit score, how it’s made up, and the steps that go along the way!

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How a Car Loan Builds Up Your Credit

While you may, at first, be wondering why taking on a large piece of credit like an auto loan may help rescue you from bad credit, it’s with that large chunk of credit that with new good habits you’ll be able to dig your way out of that hole. A car is a big purchase, and thus an auto loan can be a huge portion of credit, which adds a sizable loan onto your credit listing, giving you a big and consistent loan to pay off each month, promoting good habits, consistency, trust and comfort. Each payment is one step closer to crawling out of that bad credit rating.

Credit Score Breakdown

You now know how much an auto loan can help improve your credit score, but may be unsure about what exactly makes up a credit score. The following is a rough estimate as to how your credit rating is comprised:

Payment History: 35%. Missed payments are a big time negative against your score, so paying on time and consistently each period is your biggest plus.

Debt Load: 30%. This concerns how much debt you carry, in relation to your income, along with how much of it you actually use vs. what you’re allowed.

Credit History Time: 15%. This section is about how long you’ve had credit open, and thus the longer you’ve had it going the better.

Credit Mix: 10%. Having a mix of different types of credit is always preferable, from auto loans to credit cards and more.

New Credit Check: 10%.This temporary effect comes when you’re opening a new account with the required credit check

Rebuilding Your Credit

Now you’re an expert on what constitutes a credit score and the importance of an auto loan on rebuilding your credit, but how do you exactly go about doing it? Below are a few tips to follow to help build it up.

Pay on Time & Consistently: This is the primary one, you need to be building trust as well as actually paying off the loan. Pay the amount required and when requested, show that month-after-month you can be depended on to pay off a loan like this.

Know Your Limits: You want to be free from the burden of credit as quickly as possible, but you can’t overstretch your means in order to cut corners on the way there. It makes no sense to take out a large loan that you’ll struggle to pay off. Instead, take out a loan that you know you can consistently pay off and that you’ll be able to meet each month. It may take longer than you’d like but you’ll be able to get it done comfortably.

Actually Pay Off Your Debts, Don’t Move Them Around: Don’t try to get crafty and switch around your debts across different cards, just focus on the slower but sure method of paying them off and taking a small chunk out of them each month.

Diversify Your Credit: While an auto loan may be a large chunk of credit, it, alone, is only one piece. Mix up your credit and take on a variety (still within your means, of course) to show the selection of what you can handle and pay off.

Get an Auto Loan & Rebuild Your Credit with Davey Auto Sales

Getting approved for an auto loan and on your way toward better credit days ahead has never been made more easier than with our Davey Auto Sales dealership. For decades we’ve been helping people no matter their credit score or financial situation get not only a vehicle they like but an auto loan that works within their budgetary needs. Our finance experts have years of experience in the industry working with people just like you. Whether you want to start the process now, or just have a few questions, we’re always here to talk!