Why it usually takes more than either a regular or secured credit card to establish your car credit
In order to regain or establish your auto credit you may need to work with one of the subprime auto lenders that offer approved auto loans to credit-challenged individuals.
We know this is usually the case because since 1992 we’ve spent a great deal of time helping car shoppers with less than perfect credit here at Auto Credit Express. We even created a website so that applicants could research such subjects as certified used cars as well as today’s topic: why it is sometimes necessary to take out a high-risk auto loan in order to reestablish your car credit.
High risk car loans
You may be wondering why you should even apply for a car loan from a subprime lender. After all, paying cash for a vehicle, while using a regular or secured credit card, can often improve your credit scores.
The fact is doing this probably won’t help your auto credit, even if it improves your FICO scores.
The reasoning behind this is that any type of credit card is a form of revolving credit. With revolving credit if you don’t pay off card balance every month, you are allowed to carry over the remaining balance to the next month.
An auto loan, on the other hand, is a type of installment credit. With this type of loan you sign a contract to pay back the initial amount, plus interest, for a fixed payment each month over the loan term.
Another difference that separates installment credit from revolving credit is that installment loan balances are typically higher than revolving credit limits. Installment loans also carry a higher monthly payment as a percentage of the loan balance and are much less flexible to changes. This means installment buyers have to be more disciplined in paying back the loan.
In determining your credit scores, FICO looks at both types of credit. Automotive lenders also look at both credit types but pay special attention to how applicants have paid on installment auto loans. This means that while a good payment history with a credit card will help your credit scores, it doesn’t carry as much weight when applying for a car loan.
For this reason, even auto loan applicants with decent credit scores are sometimes turned down if they’ve never had one or if it turns out they had a spotty payment record with a previous car loan.
Either way, these individuals might have to first prove themselves by establishing their car credit with a lender willing to take a greater risk.
But if this is the case and you’ve been turned down for a traditional auto loan, where do you find a dealer that’s signed up with these types of lenders?
Before visiting a tote the note dealer, you should know that Auto Credit Express works with dealers that understand a broad range of credit issues and can offer you your best chance for approved auto loans.
So if you’re ready to establish your car credit, you can begin now by filling out our online car loans application.
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