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How an Auto Loan Can Help You Improve Your Credit Score

Most of us regular folk tend to have a problem with credit scores. It’s just one of those things that the 99% have to deal with. But, this isn’t to say that things don’t get frustrating. After all, we’re talking about something that affects our financial life in a big way.

Problems of having a low credit score

A poor credit score can bring about a series of problems, the biggest of which is the inability to qualify for a loan. However, the good news is that we do have some control over our credit score, which means we can improve it. There are actually quite a few ways in which we can boost our credit score.

For instance, clearing off your credit card debt is an effective way to improve your credit score. It’s because lenders want to see a massive difference between the money you borrow and the money you’re borrowing and paying off. Since your credit card is probably being used the most, it’s obviously the most significant debt you have. In fact, it’s probably the only debt you have if you haven’t already signed up for an auto loan or a mortgage. So, when you keep making credit card payments, it looks good on your credit report.

An odd solution

But, there’s another interesting way to boost your credit score – by paying off your auto loan.

This might sound strange but hear us out. You see, there are around 5 things that influence your credit scores – your payment history, your credit utilization, applications for credit, the age of your credit history, and the number of credit accounts you have.

Now, if you have an auto loan that you’re paying off on time and on a regular basis, it can look great on your credit report and actually boost your credit score. Also, when you keep paying off the debt every month, you’re actually reducing your credit utilization, which is also good.

Of course, there’s a catch. This only works if you already have an auto loan. If you don’t have an auto loan, you can always sign up for one, but you’ll need a good credit score for that. So, an auto loan can boost your credit score only if your credit scores went down after you got the loan.

If you have an existing auto loan, make sure you prioritize those payments to boost your credit scores.


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