How to Rebuild Your Auto Credit

Late payments have a lasting impact on your credit history and your ability to qualify for loans, including auto loans. Buying a car when you have a low credit score can be a challenge, but there are ways to get an auto loan even if you've had some problems in your past. If you handle the loan responsibly, you can rebuild your auto credit and refinance at more favorable rates. The good payment history on your auto loan will also raise your overall credit score.

Instructions

1

Save up as much money as you can to use as a down payment for your car loan. If you can significantly reduce the amount of money you must finance, you will raise your chances of getting auto credit because the lender's risk is reduced.

2

Get a copy of your credit report from each of the major credit bureaus before applying for a car loan to start rebuilding your auto credit. Experian, Equifax and TransUnion must all give you one free copy of your report each year. If there is any negative information that is incorrect, file a dispute. The credit bureaus must remove it if they cannot verify it. This will put you in the best possible position to start rebuilding your auto credit.

3

Try to get pre-approved for a car loan. This may be impossible, depending on your credit history, but some lenders will agree to a pre-approved loan if your credit score is borderline and you having been doing business with them in the past. For example, you might be able to get pre-approval from your bank or credit union if you have accounts there. If you are unable to get pre-approved, expect to pay a higher interest rate for your loan.

4

Shop for a used car rather than a new one. When you are rebuilding your auto credit, it's best to purchase a more affordable vehicle. This reduces the loan amount, which means lenders will be more willing to take a chance on you and that your payments will be lower. You should aim for the lowest possible payments because it's critical to make every payment on time when you are rebuilding your auto credit.

5

Make every payment on time. Send payments early to make sure they are credited before the due date. When rebuilding your auto credit, every payment counts. Each on-time payment contributes to raising your credit score, but if you are late or miss even one payment, your credit score will go back down and harm your auto credit.

6

Apply for a loan with more favorable terms after you have made on-time payments for six months to a year. Once you have built up an on-time payment history, you may be able to refinance your auto loan with another lender who will give you a lower interest rate. Continue rebuilding your auto credit by paying the new loan as promptly as you paid the original one.