Does Financing a Car Build Credit?
If you’re looking to build your credit, there are many ways to go about doing so. Financing a vehicle is one way to build your credit. Making consistent payments towards a larger item shows creditors that you can be trusted to pay your debts, in turn building your credit.
Whether you’re a young person who has not had a chance to build your credit or you have a poor credit history, getting a loan when you’re considered ‘high risk’ can be incredibly difficult. If you’re looking to build your credit, here are some of the reasons financing a vehicle may be the right choice for you, and how you can go about getting a car loan to build your credit.
How is your credit score calculated?
A credit score is a numerical representation of someone’s ‘creditworthiness’, or a representation on what kind of expected risk is associated with that person’s credit files. Credit scores are calculated by combining a variety of variables. Lenders look at your spending habits, payment history, and a variety of other debts and factors to determine your credit score.
Here are primary factors that contribute to a person’s credit score:
- Payment history
- Utilization ratio
- Types of credit
- Length of credit history
- Current debt
How does a car loan build your credit score?
Credit scores are built by consistently showing you are able to both use available credit and pay it back. Your payment history as well as your current debt makes up over 60% of your credit score. If you can successfully pay back your loans without accruing high balances on your credit card, you will slowly begin growing your credit score. Purchasing a vehicle provides a consistent payment plan that will show you are capable of paying back loans. Financing a vehicle (and consistently making your payments) will prove to lenders that you are reliable with credit and can be trusted with larger loans. Magma motors can help you build your credit score if you are looking for bad credit car dealers in Edmonton.
Advantages of building your credit by financing a vehicle
There are many reasons to choose a vehicle loan to start building your credit. Here are some of the key advantages:
- Auto loans are simpler to achieve
- Auto loans are secured (fixed loan payments)
- Working towards equity
- Takes care of a primary need
The reason auto loans are simpler to achieve is because subprime loans are available. This means that you can get financing for a vehicle when your credit score is below average. Auto loans are also a secured, fixed payment, which means it is easier to plan ahead financially. Fixed payments mean you always know what you’re going to have to pay, so you can budget accordingly and ensure you’re consistently paying your loans.
If you’re choosing to get financing to build credit, a vehicle allows you to build slowly towards equity. Your vehicle’s worth will depreciate over time; however, by financing a vehicle you are working towards owning a valuable asset. Finally, financing a car has the unique advantage that you are fulfilling a primary need. Having a vehicle is incredibly useful, and reliable transportation can often be a requirement for workplaces and make social activities much easier. If you’re going to build credit by financing a new asset, a vehicle is a great choice to improve your quality of life.
What should you do if you can’t get a car loan?
Sometimes, your credit score will just be too low for a car loan. There are a few options you can choose from to move forward. There are many strategies you can implement to slowly but surely build your credit up. Using a credit card and deliberately paying it off and keeping a low balance, paying off your high-interest debts, spending within your means, as well as saving up for a larger down payment can all boost your credit score and improve your chances of getting a car loan.
How to get a car loan with Magma Motors
Magma Motors offers financing for a wide variety of credit scores, income ranges, and needs. Our wide selection of vehicles offers a lot of choices where you can find a vehicle that fits within your means while also helping you grow your credit. Contact us if you are also looking for in house financing car dealers in Edmonton.
Our team will work with you to ensure you can get the best possible financing. We don’t just look at your income and credit history, we also look at side business payments, AISH and other disability funding, and any other income you may be collecting to help you get the best possible vehicle. Contact us today to learn more about building your credit by financing a car!