A car is not a luxury. In today’s modern workplace, a vehicle is an absolute necessity for doing business and getting to work. But what if you have bad credit? Is it even possible to get a car loan? And if so, can the loan help repair your credit? At Ride Approval in Alberta, we’ve helped hundreds with poor credit obtain loan financing, and we can help if you’re shopping for a car but you have less-than-stellar credit.
How a Car Loan Can Help Raise a Bad Credit Score
To understand how a loan can help your credit score, it’s important to understand what contributes to your credit score and how it is impacted by financial decisions.
What Is a Poor Credit Score?
In Canada, there is a wide range of credit scores, from 300 to 900. The best score is 900, but a score that is more than 650 will still generally qualify you for some type of loan.
The average Canadian credit score is around 650, but that can vary some from province to province. If your credit score is under 650, then things can become very difficult.
The Most Common Reasons for Credit Problems
No one is immune to credit problems. The unexpected can happen and always has the potential to turn life on its edge. While there are several different reasons that people find themselves with credit problems, here are the most common ones:
- Missing payments
- Misusing credit cards
- Excessive spending
- Failure to have an emergency fund
- Significant emergency that goes beyond emergency fund amounts
How Can a Bad Credit Score Affect Me?
First, it can make it very difficult to get a needed loan for a car. But did you realize that it can even affect your ability to get a job? Some employers are hesitant to hire employees with a low credit score. In addition, a lower credit score makes it difficult for you to rent a car or rent a home or apartment.
Factors That Influence Your Credit Score
There are several items that come into play when determining your credit score. They include:
Your Payment History
Paying your bills on time is vital. You never want to have your bill sent to a collection agency. Any activity like that will have a negative effect your credit score.
This is the ratio of how much credit you have used compared to how much credit you have available. The best practice is to keep your balance ratio below 30 percent. The most important lesson you can take from this is to avoid maxing out your credit.
Always be sure that you will have more credit than you think you’ll need. This tells lenders that you are a more acceptable risk.
Inquiries on Your Credit
There are different types of inquiries on your credit. One is called a hard inquiry, and that occurs when a lender is checking out your credit rating. If you have a lot of these inquiries in a short amount of time, it sends a warning signal to lenders.
However, there is also a type of inquiry called a “soft inquiry.” This is the type of inquiry you get when you’re checking your own credit score. If you’re not periodically checking your credit score for errors or updates, you should be!
In short: Only apply for credit that you really need.
Length of Your Accounts
Another factor is to determine the amount of time that these accounts have been open. If they have been open for too short a time, then that can damage your credit score. What lenders are looking for are less risky borrowers, and the amount of time a line of credit is open can be a huge factor.
Another takeaway from this is that you should avoid closing accounts, even if you have ones that you haven’t used.
Number of Accounts
If you have a lot of accounts that carry balances, this can be a red flag to lenders. Credit bureaus will deduct credit points if they believe you have too many accounts.
How Can a Loan for a Car Help Improve Your Credit Score?
We’ve reviewed the things that comprise your credit score, and we’ve looked at things that can negatively impact it. But now you’re probably wondering, how would a loan for a car help me?
It’s simple: making regular payments on an installment-type loan shows responsible lending behavior and can go a long way toward helping establish your credit. It can also help you in several other additional ways.
If You Have a Small Credit Profile
If you only have a few credit accounts, (a “thin credit file”), then an auto loan will provide an addition to the number of accounts you have, which can help build your credit history.
Diversify Your Credit Line
It’s important to have both revolving credit and installment loans to improve the mix and variations of credit that you have available to you. That can affect your credit score.
What to Look for in a Vehicle Financing Company
If you have less-than-perfect credit and you need a loan through a vehicle financing company, there are several things that you should consider looking for before you decide to do business with them. Ask yourself these questions:
Will They Process My Application for Free?
A good company will process your application for free. Be sure to ask about that before doing business with them.
Will They Work With Lenders?
Your company should work for you and work diligently with lenders on your behalf in order to get you approved.
Are They Willing to Work to Get Me the Best Rate?
Don’t simply be satisfied with getting an auto loan. While getting a loan with a poor credit score is a victory, don’t settle for less than the best deal you can get. A reputable company will work to get you the best possible loan terms for your credit history.
Will They Work Quickly?
No one wants to be on hold for days and days finding out whether or not their loan has been approved. In most cases, a reputable company can get this result in a few hours.
Will They Work With My Credit Score?
Many companies claim they’ll work with anyone, but is the company really willing to go the extra mile for someone with tarnished credit? A good company offers solutions, not judgment.
Are There a Wide Range of Cars Available?
Be wary of groups or organizations that have a very small, limited number of vehicles and opportunities available.
Ride Approval of Alberta Is Ready to Help You
Ride Approval satisfies the answers to all the questions above. We work hard to get you the car loan you want and need, and we never charge an application fee. In most cases, we can tell you if you’re approved within hours, and we work hard for you to ensure that you not only get a loan but one at the best rate that is possible. We are dedicated to the highest level of professionalism and customer service.
Do you want to improve your credit score and get a loan for the car, truck, or SUV you need? Contact Ride Approval today.