Credit cards and auto loans
Here at Auto Credit Express all we've done for the past two decades is help our applicants, even those who have experienced credit issues, arrange for auto loans through our national network of affiliate new car dealers.
But a car loan is only installment credit and if these consumers are seriously interest in credit repair, they'll also need to reestablish at least one line of revolving credit. The easiest way to do this is to get approved for some type of credit card.
We say "some type" because there are actually two different kinds of credit cards. The first, a traditional credit card, is available to consumers with good to excellent credit. The second, a secured credit card, is available even to people with low FICO scores.
Unlike a car loan, credit cards have no fixed repayment period. The minimum monthly payment, typically just a portion of the outstanding balance, is based on the balance owed. And while cardholders can pay off the entire balance each month, if only the minimum amount is paid the credit card issuer will carry over the balance (revolve) to the next month, which will result in additional interest charges to the account.
Secured credit cards
Both traditional and secured credit cards work this way. The difference between them is that with a traditional credit card, the issuer is extending credit to the account holder. With a secured credit card, the amount of credit extended is based on funds deposited in a savings account by the account holder.
In this respect, a secured credit card is like an auto loan. When you take out a loan for a vehicle, the car is the collateral for the loan.
When you open up a secured credit card account, the funds in the savings account are the collateral for your credit limit.
So why shouldn't borrowers with problem credit just apply for a debit card from their checking or savings account? Good question.
The biggest advantage to getting a secured credit card is that, like a car loan, both the account and the monthly payments to it will be reported to the credit bureaus. This not only establishes the account holder's revolving credit, but the timely monthly payments will also raise that person's credit scores.
Provided those payments are made on time, it's a win-win situation all around.
Like any type of credit, it pays to shop around for the best deal – even for consumers with bad credit. Here's what to look for:
- Compare both the annual percentage rate (APR) as well as the set-up and yearly fee schedule to see which is the best
- Check for issuers that, after a period of on-time payments, are willing to increase your credit limit without depositing additional funds
- Better yet, look for an issuer that, after a period of on-time payments, would be willing to convert the secured card to a traditional credit card
As we see it
A credit card is a great way to re-establish your revolving credit. If you don't qualify for a traditional credit card, check out a secured card – just be sure to shop around first for the best all-around deal. Raising your credit scores in this way before applying for an auto loan might also reduce the interest rate you'll qualify for when you do.
One more thing: if you've had credit issues in the past or if you've been turned down for an auto loan by a traditional lender, you should know that Auto Credit Express specializes in helping applicants with bruised credit find those dealers that can give them their best chances for car loan approvals.
So if you're ready to reestablish your auto credit, you can begin now by filling out our online car loan application.