Should I use a car loan to rebuild my credit?
I want to rebuild my credit, but I also need a set of wheels to get around. Is a car loan a good way to rebuild credit?
Using a car loan to rebuild your credit might be the right move! However, it’s highly dependent on your current debt and credit score.
If you have lots of debt and a low credit score (less than 660), taking out a car loan isn’t the best idea. You’ll just be digging yourself deeper in the hole.
You’d be better off using any extra cash to pay down your current debt—especially high-interest credit card debt—or remedy delinquencies on your credit report.
If you have a decent credit score (661 to 700), you can probably find a decent interest rate on a car loan. In this scenario, a car loan can help you slowly rebuild your credit—but only if you make payments on time and don’t miss any.
Regardless of your current credit, getting a car loan actually lowers your score by five to 10 points as your lender will pull a hard inquiry to ensure you qualify for the loan. A hard inquiry remains on your credit for 12 to 24 months before it eventually drops off.
If you decide to go ahead with a car loan, shop around several lenders to make certain that you get the best interest rate possible. And remember, you will also need to budget for other expenses—namely car insurance.
Downloading Jerry is the best way to make sure you don’t overpay for insurance. Jerry is an insurance comparison app that shops for low prices with over 50 different insurance companies for free. You will get quotes in seconds, can make changes at any time, and if you ever have any questions, agents are just a text away!
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