There are many different ways for Los Angeles residents, and people everywhere else in the US, to build credit. However, did you know that taking out a car loan is one of them? It’s true, and you don’t need perfect credit to qualify for one, either.

A Car Loan Helps Build Credit

How a Car Loan Helps Build Credit for Los Angeles ResidentsMany residents of Los Angeles rely on a vehicle to get them around the city and surrounding areas. Unfortunately, not every Angeleno has great credit, but the good news is that there are dealerships around LA that specialize in bad credit auto financing. We can point you to them, but we want to explain how a car loan can improve your credit first.

Most lenders look at your FICO credit score, which is made up of five categories: payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%), and new credit (10%). When you choose to finance a vehicle, each of these categories is affected.

Your auto loan gives you a chance to make on-time payments, which boosts your payment history and helps you positively impact your credit over time. At the same time, if you miss a payment or default, it’s going to drop.

In addition to the amount you owe from taking out the loan, the amounts owed category is also impacted by what you owe on installment loans compared with their original amount, how much you owe on different types of credit accounts, and how many of your accounts have balances, among other things.

Your length of credit history factors in the age of your newest credit account, how long specific accounts have been opened, and more. Meanwhile, your credit mix benefits from adding an installment loan, while how many new accounts you have, how long ago they were opened, and any recent hard inquiries all play a role in the new credit category.

All in all, a car loan can help build credit for Los Angeles residents because it affects each of the five categories that make up your FICO credit score.

Qualifying for a Bad Credit Auto Loan in Los Angeles

If improving your credit sounds good, how do you actually get a bad credit auto loan around Los Angeles? You need to be able to qualify for a bad credit card loan, and that means meeting a lender's requirements. You're probably going to be working with a subprime lender – those who specialize in financing credit-challenged consumers and work through special finance dealers.

Each subprime lender has their own specifics, but they generally ask you to provide these documents in order to get approved:

  • Proof of income – Most lenders require that you make a minimum of $1,500 to $2,000 a month before taxes from a single job. You need a recent computer-generated pay stub showing year-to-date earnings to serve as proof of income, or recent tax returns if you're self-employed.
  • Proof of residence – A recent utility bill in your name listing the address on the application.
  • Proof of a working phone – A recent phone bill in your name at the same address. It can be either a contract cell phone plan or a landline phone, but not a prepaid phone.
  • A list of personal references – Make sure you put together a list of five to eight personal references, which is the typical number asked for. This isn’t used to determine approval, but the lender is going to ask for one complete with names, addresses, and phone numbers before you take delivery.
  • A down payment – Although not a document, a down payment is usually required to get approved for bad credit auto financing. Most subprime lenders ask for 10% of the vehicle’s selling price or $1,000, whichever is less.

Also, the lender may ask that you have a cosigner. Not all borrowers require one, but it doesn’t hurt to have someone in mind in the event one is needed. Your cosigner just needs to have good credit and enough available income to qualify for the loan individually.

Need Help Finding a Dealer in Los Angeles?

Now that you know a bad credit car loan can help you build credit, are you ready to take the next step and get the process started? If so, we’ve got you covered.

At Auto Credit Express, we work with a nationwide network of special finance dealerships that have the subprime lenders available to help Los Angeles residents struggling with poor credit, bad credit, no credit, and even bankruptcy. The process is simple to get started, just fill out our auto loan request form to begin now!