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Do Car Loans help Build Credit?

When a person has bad credit, there are a number of ways to help rebuild it

Auto-loans, behind mortgage loans, are one of the best ways to help rebuild or establish credit. There are several factors to consider when deciding to take out an auto-loan.

First, the borrower should have a reasonable monthly income to support the monthly auto-loan payments. If the auto-loan payments are less than 18% of gross monthly income, the borrower is more likely to stay on budget and make reliable payments. Secondly, the loan amount should be substantial enough to give the bank something to go off of when they review payment history. An amount over $8000.00 would be ideal.

Finally, to build credit the borrower cannot miss any payments or send in late payments. The borrower should also keep the auto-loan open for at least a year, even if he or she has enough to pay of the loan sooner. Keeping the loan open shows a pattern of responsible payment history which is what builds a credit score.


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