If you’re new to the credit world and are still figuring things out, something you should be aware of is why it’s important to have good credit. Whether you’re applying for a loan, mortgage, or credit card, your credit is typically the biggest factor in whether or not you get approved, as well as in what terms you qualify for.
4 Benefits to Buying a Car with Good Credit
You don’t need great credit to buy a car, but it definitely helps. There are many lenders that offer special financing and work with unique credit situations, but their deals aren’t going to be nearly as good compared to buying a vehicle with good credit.
What exactly are the benefits when you buy a car with good credit? Here are four big ones:
- More financing options available – You simply have more options available to you. You aren’t confined to working with a subprime lender or buy here pay here dealership like you may be if you have bad credit. You can get pre-approved through your bank, credit union, or online lender and rate shop to find the best deal.
- Qualify for better rates – In addition, you also qualify for better interest rates. Unless you're looking at a vehicle with a special 0% APR, you're going to pay interest on an auto loan. Bad credit car buyers can usually only qualify for higher than average interest rates, which raises the overall cost of the loan. Buyers with good credit can qualify for lower APRs, which means the loan is cheaper.
- Pay less in insurance – In most states, your auto insurance premium is affected by your credit score. This means that with everything else being equal (accidents, tickets, etc.), the higher your credit score, the lower your premium can be. Car insurance can be costly, and simply having good credit could make a difference in affordability.
- Skip the down payment – A down payment is typically a requirement when taking out a bad credit auto loan. Borrowers with good credit, on the other hand, generally aren't required to make one. Although, depending on the interest rate you can qualify for, it may be in your best interest to put money down, since it lowers the overall cost of your loan.
Ways to Improve Your Credit Score
The reality is that the higher your credit score is, the better off you are. It can take years to improve your credit score to the point where it's in the "good" range, but you can always take steps toward building it up.
Here are four ways you can improve your credit score over time:
- Pay all bills on time – Most lenders look at your FICO credit score, and your payment history is the biggest factor in determining what it is. As long as you're paying all of your monthly bills on time each month, you should see your score rise.
- Become an authorized user – If a close friend or family member allows it, you could be added as an authorized user on one or more of their credit cards. You get the benefits of the card's payment history added to your credit profile when you do this.
- Credit builder loan – Credit builder loans are small, short-term loans designed to help you build credit. Once the terms are set, you make monthly payments into an account, which are reported to the credit bureaus. Once the loan is complete, the account unlocks and you get the money back plus interest.
- Add a line of credit – Adding any line of credit, whether it’s revolving (credit cards) or installment (mortgages, loans) account, and making on-time payments is a great way to build a solid credit history and improve your credit score. Just make sure you can financially handle the additional credit, since taking on too much and missing payments drops your score.
Looking to Add a Car Loan to Improve Your Credit?
Now that you know why a good credit score is better, are you ready for a car loan that can improve your credit score? If so, we can help match you to a dealer that has the lending resources to assist you.
Auto Credit Express works with a nationwide network of special finance dealerships that know how to handle bad credit, no credit, and other unique credit situations. Simply fill out our easy, no-obligation auto loan request form today, and skip the headache of hopping from dealer to dealer hoping they can help.
