However, once you've been approved for an auto loan, the timely payments you make can be very good for your credit score. In addition, increasing the credit mix in your report can also be a good thing for your overall score. That said, not making car payments can cause your credit rating to drop, so it's essential that you be responsible for your car payments after obtaining a loan to finance the purchase of a vehicle. Loans Canada is not a mortgage broker and does not offer mortgage lending or any other type of financial service.
Not only can a car loan help you buy a car without having to pay full price, but it can also offer you an opportunity to rebuild your credit score. Maintaining a good credit score is something you should aim for to ensure a healthy financial profile, and an auto loan can help you do that. Keeping up with bill payments is key, so it's very important to apply for an auto loan that is within your financial means to recover your credit. A car loan can have both a positive and negative effect on your credit rating based on the criteria mentioned above.
Ideally, you should include a combination of different types of credit in your credit report, including installment loans, such as car loans, and revolving debts, such as credit cards. When you apply for a car loan, your score may drop slightly because you're applying for new credit. This makes sense if you have a lot of outstanding high-interest debts and the rate you get with a car title loan is lower. If you plan to use an auto loan to build credit, it's important to understand that the loan itself won't help create your credit report or credit score.
When you apply for a car loan, you'll be dedicating a larger portion of your income to this new debt, leaving less money left over for other expenses. Mortgages, personal loans, and credit cards will be much easier to obtain with a higher credit score, which you can get if you're diligent with your car loan payments. Generally, car title loans don't take long to process, which means you can get the money you need quickly, which can be useful when you're dealing with a financial emergency. When you open a new credit account, such as a car loan, your score may decrease because the average length of your history decreases.
In fact, Experian mentions that once you apply for a car loan, your credit could experience an initial decline.
