When you’re looking to buy a new or used vehicle, it can be intimidating looking at the price tags. If you don’t have great credit, the car buying process can be even more stressful as you may not have the confidence that you’ll be approved for a loan. One thing that many people fail to remember is that if they trade in their current vehicle, buying a new car can become much more manageable. While a trade-in won’t directly improve your credit score, it will make your payments easier to make, and in turn, improve your credit score.
What Credit Score Do You Need for a Car Loan?
There is no particular credit score that you need to obtain a car loan, your credit score will ultimately determine your financing terms. Typically, the higher your credit score, the more likely you’ll be approved for a car loan with a lower interest rate. On the other hand, if you have a low credit score, expect to pay more interest on the car loan. The interest on a car loan is essentially the cost of getting a loan from a lender. If the lender sees the loan as high risk, they will increase the interest rate to make the risk worth it for them. With that said, it’s not impossible to get a car loan with poor credit scores. At Car Loans Canada, we’ve approved people with credit scores under 600, with an interest rate that doesn’t break the bank. So if you’re looking for a car but have less than perfect credit, consider trading in your car to make the monthly payments more manageable!
Will Financing a Car Improve My Credit?
Financing a car is one of the best ways for you to improve your credit score! But beware, if you aren’t able to make your payments on time and in full consistently, you can do more harm than good. You need to be on top of your payments consistently for you to see your credit score improve. 30% of your credit score is based on the credit your actively using, a car loan is a great way to use that 30%.
We know that a car loan may seem like a lot of money upfront, but at Car Loans Canada, we find financing terms that are right for you! Don’t just take our word for it, check out our car loan calculator and work out a payment plan that works for you!
5 Tips to Improve Your Credit Score
1. Save for a down payment. The more money you can pay upfront on a car loan, the smaller your monthly payments will be, making managing a car loan easier.
2. Always make payments on time. If you can show lenders that you’re a reliable borrower, they will see you as a lower-risk borrower and your credit score will improve.
3. Keep your credit card balance below the limit. If you can keep your credit card balance below the halfway point, you’ll see your credit score increase quicker. It shows the lender that you’re not maxing out your credit limits monthly and can manage credit responsibly.
4. Don’t spend out of your budget. While it’s great to be active with your credit, it’s important that you don’t make purchases that are completely out of your budget. You’re far better off having a few loans that you can manage than one loan that you can’t manage.
5. Limit your credit checks. Unless you’re getting a soft hit credit check, doing a credit check will negatively impact your credit score. While checking your credit is necessary, it’s important to not do it often.