Auto Loans Can Improve Your Credit Score

Auto Loans Can Improve Your Credit Score

Taking out a bad credit auto loan can help rebuild your credit rating

It is difficult to rebuild lenders' trust in you once you have a bad credit score. If you need to start building a positive credit score again, and would also like your own set of wheels, taking out a bad credit auto loan could be the solution.

In an Equifax report, the credit agency compared two groups of consumers from 2010 and 2013. Consumers in both groups had credit ratings below 550, but the first group took out auto loans in June 2010, while the second group did not. Equifax found that credit scores for consumers who took out car auto loans rose by a median of 52 points - a 62.5 percent improvement over those who hadn't taken out an auto loan. Also, those taking out an auto loan at the start of the research were four times more likely to have built a credit score above 640 by its end. Over 25 percent managed to rebuild at least 100 points on their credit score in the three years.

If you are considering a bad credit auto loan, it's important to bear some factors in mind. Subprime lenders charge higher interest rates, making it more expensive to repay the loan. If you are taking out the loan to rebuild credit, it's wise choosing an inexpensive car with as short a loan term as possible. This means that credit points can be restored sooner. If you want, you can access a more expensive vehicle, with lower interest rates, later when your credit is better.

If you are interested in taking out an auto loan, visit our curated list of top payday lenders.