How to build credit whilst financing a car: Tips and Tricks
30 June 2023
By Joy Pearson
Looking to boost your credit score whilst financing your dream car? Don't let a lack of credit history or a low score hold you back! With these tips and tricks, you can build your credit and hit the road in style. From checking your credit report for errors to shopping around for the best interest rates, we've got you covered. Get ready to rev up your credit score and drive towards financial success.
Financing a car is a great way to build your credit score, as long as you make your payments on time and in full each month. Making timely and full payments each month demonstrates to lenders that you are a reliable borrower and can positively impact your credit history. But what if you have no credit history or a low credit score? Having no credit history or a low credit score can make it challenging to get approved for car finance and may result in higher interest rates. This is due to the fact that without a track record of your borrowing, lenders may find it difficult to asses your creditworthiness. In such cases, it can be helpful to explore options specifically designed for individuals with limited or no credit history, such as secured car finance or loans with a cosigner.
Before applying for car finance, it's essential to check your credit report for errors or inaccuracies. Your credit report provides a detailed history of your credit accounts and payment history. You can get a free copy of your credit reports from each of the three major credit bureaus once a year. If you spot any errors, dispute them with the credit bureaus to have them corrected.
When financing a car, interest rates can vary depending on your credit score and the lender you choose. Shop around and compare interest rates from different lenders to find the best deal. A lower interest rate means lower monthly payments, and less interest paid over the life of the loan. You should also try and make a down payment on the vehicle of your choice, as you can reduce the total amount of the loan. Making your payments on time and in full each month is crucial for building credit, as this shows lenders that you are committed to making payments are less likely to default on the loan.
One of the most important factors in building credit whilst financing a car is to make sure that you make your payments on time and in full each month, over the life of your loan. Late payments can negatively impact your credit score and make it harder to get approved for loans in the future. By doing this, and keeping an eye on your credit score, you will be able to track your progress and spot any changes or errors. Using free credit monitoring tools can help you achieve this.
If you're struggling to get approved for car finance due to a lack of credit history or a low credit score, don't despair. You could consider enlisting the help of a co-signer with a good credit history. This can give lenders more confidence in your ability to make payments on time, as well as help you qualify for a lower interest rate. However, it's still important to remember that co-signing is a serious commitment, so be sure to carefully consider all the implications before asking someone to cosign for you.
Ultimately, financing a car is a great opportunity to build credit, especially if you have no credit history or a low credit score. By using tips like shopping around for the best interest rates and using a co-signer, you can build your credit history and improve your credit score while financing a car. Remember, building credit takes time and patience, but it's worth it in the long run.