Can I Use My Car Loan to Rebuild Credit?Aug 17th, 2021
Owning a vehicle comes with numerous benefits, including the ability to use your car loan to rebuild credit. That’s right! Taking out financing on a vehicle can help you boost your credit score over time. If you’d like to learn more about how this works and if you qualify, read on.
How Credit Scores Work
Your credit card is not the only thing that shows up on your credit bureau. Any loans you take out – mortgage financing, car financing, line of credits, etc. – will report monthly. It also continues to report previous bankruptcies (6 to 7 years), consumer proposals (2 to 3 years), and any closed accounts.
Based on those factors, a number is generated to represent your credit-worthiness called a beacon score. The beacon score ranges from 0 to 900, with 900 being the highest credit score you can obtain, 720-900 is considered excellent, 680 – 720 is considered good, and anything under 600 is considered poor credit standing. (Rarely will you see anything in the 400s). Failing to make regular payments, having high amounts on your credit cards, going through a consumer proposal or bankruptcy, and opening too many accounts can all reduce your score.
If you want good credit, all you need to do is have 2-3 active trade lines (one credit card, one line of credit, and a car loan, for example) and make the payments on time every month – it’s really that simple.
Using a car loan to rebuild credit
Whether it’s pre-owned or brand new, you can obtain a loan for your Honda to restore and build up your credit. How does it work? You can start by applying online or at the dealership for a loan. Then once approved, you will be required to start making regular monthly payments as outlined in the agreement. If you make the payments on time and in full, your credit score will start to increase over time. But don’t get too excited; it won’t go from 650 to 800 overnight. It takes time to give your score a serious boost. So it’s important to start making your payments on time and stick to it. If you’re on a budget, start with a used Honda Civic or Honda Pilot. Within a year, you’ll see a dramatic difference in your credit score. As your credit score rises, you’ll be able to secure more financing for a new Honda model and raise your credit score even further. This is a gift to yourself that keeps on giving.
Ready to start rebuilding your credit today while you enjoy one of our Honda pre owned or used vehicles? Contact us today at Barrhaven Honda to get started.