Consumer Car Buying Advice Blog

Applying for a secured credit card can add to your credit repair efforts while reestablishing your car credit with auto loans for bad credit

Helping you along

If you are currently financing a vehicle with a bad credit auto loan, you may be wondering if there is anything else you can do to further raise your credit scores. We know because here at Auto Credit Express we’ve worked with bad credit car buyers for more than two decades. We even developed a web site where applications can be filled out that are then forwarded to local dealers that specialize in a broad range of customer credit issues.

The people filling out these applications, in our opinion, will then get their best chance at getting approved for a second chance auto loan, even if that means a bad credit car loan. By steering them away from a tote the note dealer, we know they’ll have a better chance at reestablishing their car credit and avoiding repossession.

But in addition to rebuilding your auto credit, there is something else you can do to improve your credit scores while reestablishing another type of credit.

Installment and revolving credit

There are two different types of applied-for credit – installment credit and revolving credit (and by “applied-for” credit, we mean a line of credit that you request, as opposed to not-applied-for credit that includes such things as medical bills).

Installment credit

A car loan is a type of installment credit. With installment credit, you sign a contract to pay back the amount borrowed at a set monthly payment for a fixed term (such as $300 per month for 48 months). As a rule, installment credit lines are usually higher than revolving credit lines and require a higher monthly payment as a percentage of the loan balance. A bad credit car loan is a type of installment loan.

Revolving credit

A credit card is an example of revolving credit. With a revolving credit account there is no “fixed” monthly payment, only a minimum amount based on the balance. If you only make the minimum payment and don’t pay off the entire balance every month, the credit card company will allow you to carry over (revolve) the remaining balance to the next month – charging you interest on the balance. There are two basic types of credit cards and we’ll look at these types next.

Secured credit card

This is the easiest type of credit card to get for just about everyone including people that have no credit history. These lenders require that you set up a savings account with them and your credit limit on the card is the amount of money that is in the account.

This eliminates the need to carry around cash, since you use the credit card for purchases and the cash is withdrawn from your account to cover those purchases. The advantage over a traditional debit card is that the Visa or MasterCard logo on the card allows you to use it at most businesses. The other advantage is that, unlike a debit card, the bank reports your monthly account payments to the credit bureaus, helping you establish or reestablish revolving credit.

Since a number of banks offer these cards, you should shop around for the best deal that includes the lowest monthly interest rate and the lowest fees. Many banks charge set-up fees, program fees, and monthly servicing fees on top of the usual annual fee, so add these up to be sure you’re getting the best deal. Also look for a bank that will convert a secured card to an unsecured card after a certain length of time, provided that you have made timely monthly payments.

Unsecured credit card

Unlike a secured card, an unsecured credit card requires no savings account as a backup fund to secure your charges. But just as with a secured card, you should shop around at different banks in order to get the best deal on interest rates as well as monthly and yearly fees.

How a credit card will affect your credit score

Your credit score will initially drop slightly after you have applied for a card, so be sure and limit the number of cards you apply for and accept. To maximize your credit score, either pay off the balance each month or keep the running balance at or below 30% of the credit limit. By doing this, your credit score will increase over time. While making on-time payments will raise your credit scores, having balances over 30% tend to drop them slightly and raise flags with the credit reporting agencies.

The bottom line

By applying for and reestablishing revolving credit while keeping your account balances under control, you can use a credit card to improve your credit scores – just like you can use a bad credit car loan to reestablish your installment and car credit.

Auto Credit Express specializes in placing customers with bad credit with dealers that can help them. Our affiliate dealers are knowledgeable and work with a broad spectrum of lenders to ensure you have your best chance of getting approved for a car loan.

So if this is the case and you are serious about getting your car credit back on track, you can begin by filling out our bad credit car loan application now.

Tags: Bad Credit, bad credit auto loan, bad credit car loan, credit, credit card, secured credit card

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