Building a Credit History
Your credit history is very important. Having a strong credit history will allow you to obtain some of the best loans with the best terms and conditions. These loans can be for vehicles, homes, and a variety of other things that you are interested in purchasing in the future.
You can strengthen your credit history with an auto loan, especially if your credit history is new. Lenders prefer to lend to customers who have lengthy credit histories because these customers are deemed to be less risky for the lenders. Borrowers who have strong credit histories can prove, through the extensive history, that they are less likely to default on their loans.
Adding to Your Credit Mix
From personal credit cards to mortgage loans, there are several different types of credit that are available to consumers. Your credit history should be comprised of several different types of loans. Having a variety of loan types on your credit history will make it easier for you to obtain loans because they exemplify to lenders that you can handle the loans that you are applying for.
The two main types of credit are installment credit and revolving credit. Auto loans are classified as installment credit, whereas personal credit cards, for example, are classified as revolving credit.
Make Your Payments On-Time
Once you have obtained an auto loan, make each of your monthly auto loan payments on time. Making timely loan payments will allow you to gradually strengthen your credit history because it proves that you are responsible and can be trusted with loans. As with other loans, the status of an auto loan is reported to credit reporting agencies monthly.
If you ever need to make a late payment on your auto loan, contact the lender and explain your situation to them so that they can work with you on the payment. Many lenders provide their customers with grace periods and do not report late payments that are under thirty days late. However, this is not a universal rule and does not need to be adhered to by a lender. Therefore, you should contact your lender immediately if you need to make your payment past its due date.
Changes to Your Credit Score
Your credit score will initially decrease slightly when you apply for an auto loan. The decrease in your score is due to the fact that a lender performs a hard inquiry on your credit report in order to determine if you are a good customer to lend to. Hard inquiries are negative for your credit score and will stay on your credit report for up to two years. If you apply for multiple auto loans, then each lender will leave a separate hard inquiry on your credit report. However, credit reporting agencies typically report multiple similar hard inquiries as a single inquiry if they are made within a fourteen-day time span. Therefore, if you are interested in applying for multiple auto loans to receive the best terms and conditions, you should complete your multiple applications within fourteen days to minimize their effect on your credit score.
An
auto loan can be a great tool for you to use when building your credit history and improving your credit score. There are a variety of auto loans that are available to you, and you should carefully assess how each one can help you with your long-term goals. If you would like to learn more about auto loans and how to improve your credit with an auto loan, then contact a representative here at
Leachman Buick GMC. We will gladly help you understand more about auto loans and how they can be beneficial for you.
