The Impact of a Car Loan on Your Credit Score: What You Need to Know

What Are the Main Credit Bureaus in Canada? 

In Canada, your credit activity is reported to one of the two major credit bureaus: TransUnion or Equifax. These companies have detailed reports on your credit history, including your sources of credit, when you opened them, the number of credit checks on your report, and any late or missed payments on your accounts. 

When lenders are checking your eligibility for a loan, they will check your credit history when deciding whether to approve a loan. 

What Are Your Credit Score Ratings?

To be approved for a loan from traditional lenders such as banks, and credit unions, you need to have good or excellent credit. 

Credit scores range between 300 and 900. According to Equifax, their scoring model is as follows:

660 - 724 Good

725 - 759 Very Good

760+ Excellent

While having a high credit score is a good thing, it is not the only thing that counts towards securing a loan. 

Loan applicants with scores of 500-600 and sometimes lower can still get approved for a loan if they show an established credit history and regular payments. 

Where Can I See My Credit Rating?

Many online banking apps have credit history and credit scores built into individual accounts, so you can easily check your report. Your credit history is also updated monthly to reflect any changes to your account.  
 

How Do You Build Up Your Credit?

If you are starting from scratch, or need to build up your credit, the best way to achieve this is by applying for multiple sources of credit. 

Applying for a credit card is an easy way to build credit. You don’t need approval for a large amount of credit; start small, use your credit sparingly, and pay your bills on time.

Utility Bill Payments

Utility bill payments such as electricity, gas, and cell phone are also reported on your credit report, so wherever possible, put these accounts in your name so that you can take advantage of the credit-building opportunities.

Take Out a Loan

You don’t have to take out a huge loan to start building credit; even a small loan adds to your sources of credit, and regular payments have a positive impact on your credit report. 

Can a Car Loan Help to Build Credit?

Yes, larger car loans are definitely a great way to build up your credit and can positively impact your credit score. It is important to note that when you apply for a car loan through a dealership, make sure the loan is reported to the credit bureaus; some dealerships may provide private loans that aren’t reported to TransUnion or Equifax, so they are not reflected in your credit history. 

Can I Get a Car Loan With Bad Credit?

At Insta Auto Solutions, we understand that you need a car to get to work, drop your kids to school, and attend the many activities in daily life. We also understand the importance of building credit. This is why we want to help you to buy a car and build up your credit at the same time. If you fall into any of these categories, we can help you to secure a car loan:

• Newcomers to Canada

• Students

• Individuals with poor credit

• Individuals who have claimed bankruptcy

It is essential to start building or rebuilding your credit as soon as possible, as you need good credit to secure loans and mortgages in the future. 

Apply For a Bad Credit Car Loan

It can be difficult to get approved for credit from the banks if you don’t have a good credit rating. 

Instead, you can get financing with non-traditional lenders who offer bad credit car loans. 

How To Apply For a Bad Credit Car Loan

To apply for a bad credit car loan, your lender may need to see the following information:

• Government-issued ID 

• Two months of pay stubs or several months of bank statements

They will also perform a credit check to assess your credit history. If you would like to get pre-approved for a loan, we can help. You can simply apply for pre-approval online and receive a response on the same day. 

Refinancing Your Auto Loan to Build Credit

Even if you already have financing, you can still consider refinancing a car loan with bad credit. Many car owners choose to refinance their vehicles for several reasons, including getting a longer loan term to extend their loan payments and lower their monthly costs. If your credit rating improves, you may also wish to apply for a new car loan to take advantage of lower interest rates.

If you already own your car, you can still refinance your vehicle. This may be helpful if you need a loan for something else. Refinancing is also a good way to build up your credit.

Factors That Negatively Impact Your Credit Score

If you are looking to build up your credit score, there are several things you should avoid:

Not Paying Your Bills

Missed and late payments will definitely knock points off your credit score, so it is essential to pay your bills in full and pay them on time. When you use credit, make sure you only spend what you can afford. Create a budget and stick to it, factoring in all your monthly payments.  

Too Many Credit Checks

Too many credit checks can also serve as a warning to sign to lenders, so be careful when applying for credit. Don’t apply for loans that are unaffordable; lenders will assess your income and expenses when determining your ability to repay your loan. At Insta Auto Solutions, we only do a credit check with lenders that we know will give you a loan based on your credit history. Our financial managers have a lot of experience working with banks and have connections that can help you get a loan. 

Tips to Improve Your Credit Rating With a Car Loan

When you are looking to finance a car, we recommend that you consider the following:

• Choose a car that you can afford

• Make a downpayment on the car to lower your costs

• Get a co-signer with a good credit score to help you qualify for a loan

• Create a monthly budget and stick to it

• Make your car loan repayments in full and on time

What To Do if You Have Difficulty Repaying Your Loan

Life certainly has its ups and downs, and we understand that there may be times when you can’t make your car loan payments. Job loss, unexpected costs, and even inflation can affect your ability to pay your bills. Lenders understand this too. 

If you are having difficulty making your payments, the best thing to do is to consult with your lender. They may adjust your repayment plan or suggest refinancing a car loan for a longer term. 

We recommend contacting your lender early, and whatever you do, don’t let your bills pile up, as this will affect your credit score and be reflected on your credit report. 

Get Approved for a Car Loan and Improve Your Credit Score

At Insta Auto Solutions, we are here to help you get approved for a car loan so you can build your credit for a better future. We help by checking your credit report and telling you what it means. We will also offer you tips on how to improve your credit rating to make it easier to qualify for a loan in the future. We will get you into a good quality used vehicle so you can get to work and take care of your family’s needs, all while building good credit. If you’d like to learn more about how we can help you, give us a call!