Confused how auto loans can increase your credit score? Understanding credit utilization, clearing past debt and making timely payments are great ways to give your credit score a boost through an auto loan.
There are plenty of advantages when you have a good credit score. You can avail a credit card with a high limit, get faster approval on loans and obtain low-interest rates. However, not everyone has a perfect credit score. So, wondering how to get your credit score from zero to hero? Obtaining an auto loan can serve two purposes: get you the required financing to buy a car and improve your credit score. Understanding all the nuances associated with auto loans can help you improve your score on the credit report.
Improve your Score with the help of an Auto Loan
The following steps will help you to improve your credit score by the means of an auto loan.
1. Keep Tabs on Your Credit Utilization
Always keep a check on the total amount of money that you owe against credit card payments and loans. Credit utilization rate is the total credit that you have consumed out of the total amount available to you. Make sure that you are utilizing less of the credit against your limit. Also, calculate the amount of the auto loan amount that will be added to your credit utilization ratio. You can improve your credit score by utilizing less of the credit available to you. A large down payment can help you earn brownie points in successfully obtaining a low rate auto loan and a good credit score (in the future).
2. Clear All Past Debt
Before you sign the deal to obtain a new auto loan, make sure you have cleared all past payments. Your previous credit card payments, mortgage loans or any other debt should be cleared before you obtain a new auto loan. Check your credit report for any debt that doesn’t match with your books of accounts. In case of any fallacy, contact Experian, Equifax or TransUnion to help you remove the wrong debt entry and you will instantly see an improvement in your credit score.
3. Timely Payments to Boost Credit
Obtaining an auto loan can go a long way in perfecting your credit score. Consistency in making timely payments will help you in improving your credit score. Additionally, a good credit score will assist you in refinancing your auto loan. Your track record of payments will become useful in negotiating a lower interest rate on your future auto loans and help you save money on the entire deal. Therefore, make your car loan payments on time and get ready for a great credit score.
Credit Score Boost: This Leads to a Better Tomorrow
Credit is all about timely payments and managing your income against the credit you can handle. An auto loan is a great way to improve your credit score and get one step closer to the car you wish to purchase. Therefore, think over the above-mentioned points before you avail an auto loan and become a credit score hero.
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