How Getting a Car Loan Helped Improve My Bad Credit Score

Being able to increase your credit score is something that you should definitely feel proud of - I know I was. When you do, you have a lot more leverage with future buys, owning a new vehicle, and more importantly building up your credit for future debt. While placing emphasis on the last benefit, keep in mind that building your credit score is very important and getting an auto loan is one way to effectively do it. This is actually what I did to help improve my score. Many lenders exist that offer you auto loans, regardless of your credit history. It's a great way to improve your situation. Let's take a look at how auto loans can help those individuals suffering from bad credit.

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The Facts - Making Auto Loan Payments

In order to really maximize the effect on your credit score, you need to have a firm idea about the types of debt that are out there. More specifically, you need to have a thorough understanding of installation debt. Basically, this is the kind of debt that requires you to pay it back in the form of monthly payments. Other examples of installation debt could include a home mortgage or a student loan. And while this type of debt typically doesn't have a final payoff date, they do affect about ten percent of your total credit score.

Understanding Payment History

One of the main factors that contribute to your credit score is your payment history. Every time you make a monthly payment towards your auto loan, it is reported to the credit agency. As a matter of fact, you can receive positive credit score activity if you pay off an auto loan payment in less than 30 days after it is due. This doesn't mean that you should take this approach. However, it does mean that there is some flexibility regarding payment history and how it affects your credit score.

Quite the contrary you should be paying off your car loan as quickly as possible. Just make sure that your particular loan doesn't have any early payment fees. Also take note that your payment history on your vehicle will account for about one third of your credit score. That is a hefty amount so it just goes to show how powerful it can be if you regularly and consistently make your monthly payments.

The Benefits

As you already know, one of the main benefits of getting an auto loan is having the ability to increase your score. It is an excellent way of increasing your credit score and is a solid way to polish your credit history. Future lenders will see this and be more likely to provide you with better interest rates. Once you know this, you should try to do everything in your power to pay off a car loan as quickly as possible.


In short, paying off a car loan is the best way to increase your credit score. Note that it makes up nearly one third of your score and is a rather simple way to do it. The trick to making it work is to make your auto loan payments early and consistently.

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