Building Credit to Qualify for a Car Loan
Having access to a reliable vehicle can make traveling throughout the day a lot more convenient. Since most consumers don't have the financial resources available to pay the full price of a vehicle in cash at the time of purchase, car loans have become very popular. However, qualifying for a car loan if you don't have much of a credit history can be challenging.
Here are two simple things that you can do to help build your credit as you prepare to qualify for a vehicle loan in the future.
1. Invest in a certificate of deposit.
If you are looking for a simple way to help establish a positive credit history, you might want to talk to your bank about investing in a certificate of deposit (CD). Once you have purchased a CD, you can use the value of the CD as collateral to secure a small loan.
Since the loan will be secured by the money you have already provided, the bank will view the loan as low-risk. This allows you to make small monthly payments to your bank, which shows that you can handle making monthly payments on time. These timely monthly payments will create a positive credit rating, helping you qualify for a vehicle loan.
2. Apply for a secured credit card.
Many consumers want to avoid credit card debt, but using a credit card wisely can be beneficial when trying to build your credit. People without a credit history might not be able to qualify for a traditional credit card, so you might want to consider a secured credit card instead.
A secured card requires that you give the card issuer a deposit. Your credit limit will be a percentage of this deposit. You will be required to make monthly payments for items purchased with the card, and failure to pay results in the card issuer seizing your deposit as payment instead.
These secured cards are low-risk for issuers, since you are borrowing against your own money. A secured card will allow you to establish a payment history that will help you get the credit rating you need to qualify for a vehicle loan.
Once you are able to recognize some simple ways that you can try to build your credit if you have no credit history, you will be able to more easily qualify for a vehicle loan when the time to purchase a car arrives. For more tips, talk to a lender like Frontier Community Credit Union.