The Best Way to Improve Your Credit for Car Loans (2023)

Joe walks from dealership to dealership in Fresno, CA, continuing to hear “Denied!” His beat-up truck finally took a dump and he desperately needs a used car to get to work.  Yet, Joe has a bit of a bad past that he doesn’t seem to be able to shake. He knows he needs to improve his credit for car loans.

He’s about to give up but decides to hit up one more spot.

He walks into Westland Auto Sales where he meets Amy and they immediately hit it off. Amy manages to help him get approved for his car loan now but also tells him she’s going to help him for the future.

She presents Joe with a roadmap and tells him, “I’m sending you on a quest, Joe. You’re going to learn how to improve your credit for car loans to never get rejected again.”

• A Brief Introduction to Credit Scores
• How to Improve Your Credit for Car Loans
• Protecting Your Credit Score
• How Fresno’s Local Dealership Assists
• Tips to Improve Credit for Car Loans
• Improve Your Credit for Car Loans FAQs

What is a Credit Score?

Amy explains to Joe that in the financial realm, a credit score is like a badge of honor.

It is a number generated from a model created by different credit tracking companies. These are companies called credit bureaus. They look at the history of all the money you have borrowed in the past.

They analyze this credit history and assign a score. This score predicts how likely a person would be to pay back the borrowed money.

“That’s called a credit score,” says Amy.

When a potential car lender takes a look at someone’s credit report they are able to quickly determine how risky it would be to lend them money. This can be on a car loan or any other form of credit line.

Credit Score’s Role in Car Loans

When it comes to car loans, this badge plays a critical role.

Auto lenders, such as banks or credit unions, focus on this. Even local buy here, pay here dealerships like ours in Fresno, CA look at this badge before deciding to grant a loan.

Many people assume that having no credit is better than having bad credit but that’s not the case. Most car lenders need a minimum credit score to extend credit. If there is no credit mix in your report, they are not able to predict how well you’ll pay.

“It’s as if they are flipping a coin and hoping they get it right,” says Amy. “As I’m sure you can guess, this isn’t good practice.”

Joe laughs but reality quickly starts to dawn on him and his laugh fades. He realizes that his credit score is the equal of his name. These credit unions and car lenders have rejected him over and over. Not because they don’t like him, but because they do not believe in his name anymore.

Why You Should Improve Your Credit for Car Loans: The Consequences of Bad Credit or No Credit

“Joe, you told me that you’d been getting denied for a car loan left and right,” says Amy. Joe nods his head. “In the finance world, they consider you a big risk. In the real world, it would be as if you kept breaking your promises to everyone and they can no longer trust you.”

“Yeah,” says Joe, letting his head sink. “I realized that a second ago.”

Amy explains that the constant denials are just the tip of the iceberg. The real problem comes when he finds someone to approve him.

Higher Interest Rates

“Let’s say you do get approved. Whether it’s no credit auto loans or a car loan with a bad credit score it means you’ll be paying higher interest rates.”

Higher Down Payment

“Not to mention,” continues Amy. “They’ll likely be requiring a higher down payment. This is so they reduce their risk and increase your commitment.”

Less Flexible Term

“I’m sure you’ve also heard commercials about getting a 5-8 year loan.”

Joe nods his head.

“That’s nearly impossible with these types of auto loans,” says Amy. “The longer the loan, the riskier it gets for them.”

Stricter Auto Loans

“Finally, if you pay late or miss a payment, they’re not going to sit back and hope you catch up. With a good credit score, this might be possible. With a car loan with a bad credit score or no credit auto loans, they’ll be proactive.

“They’ll be picking up that phone and calling you immediately. Your credit will drop further from late or missed payments. In the event, you don’t cooperate, you’ll end up with a fresh repossession on your credit report too.”

Joe shakes his head. “That’s not going to happen.”

Amy smiles. “We know, we’ll help you make sure of that.”

“What do I need to do?”

Improving your credit for car loans may seem like an impossible challenge, but Joe has Amy on his side.

With her guidance and a well-laid plan, Joe can learn everything about improving his credit score for a car loan.

Checking Your Credit Report

“First things first, here’s your credit report,” says Amy. “It outlines all the past debt you’ve taken out. Debt just means any money you borrowed and have to pay back.”

“Got it,” says Joe.

“We’re going to go through this and make sure everything is accurate. We’re trying to find any errors or fraudulent activity. This type of thing can lower your score and look really bad.”

“What are we looking for exactly?”

“You want to see if there are accounts that you never took out. Maybe late payments or missed but you know they never were. Even balances that are incorrect or severely outdated. Inquiries, old addresses, charge-offs, etc.

“This time, I provided you a credit report but you can also get one yourself for free. www.annualcreditreport.com allows you to get one free report per year.”

“Thanks, Amy, that’s good to know,” says Joe.

Freeze Your Credit to Improve Your Credit for Car Loans

“Now, here’s a little tip I like to throw out. It’ll give the next step a much better chance of working,” says Amy. “Not super conventional, but it can be very effective.”

“What is it?” asks Joe.

“You’re going to freeze your credit.”

Amy watches Joe’s brows furrow. She smiles.

“I told you, not conventional.

“You can go on LexisNexis and SageStream to do this. You do it to prevent the credit bureaus from being able to cross-reference their data with others. If they can’t verify, it means you have a higher chance of getting more items deleted from your credit report. Pretty cool, huh?”

“Hell yeah!”

“Alright, now let’s check through this report.”

Disputing Credit Errors

Amy and Joe check through his credit report and find a few errors and accounts that don’t belong to him.

“What do I do?” he asks.

“You’re going to need to contact the credit bureau that issued the report first,” says Amy. “I’d also suggest you contact the company that provided the information.

“You’re going to need to provide some type of proof. This could be a receipt, a statement, or a letter.”

“And it’ll be automatically removed?”

“No. The credit bureaus and lenders have thirty days to investigate and correct the error.  But, if they find that it is valid, they’ll deny it.

I’d recommend you still ask for a statement of dispute get added to your report. And I also suggest that you keep trying to dispute items often.”

Call Your Collectors to Improve Your Credit for Car Loans

“I know this next part will likely make you uncomfortable,’ says Amy. “But you now have to call your debtors and collection companies.”

“Why?” asks Joe.

“Because you’re going to try to settle the debt you owed them. You’re going to ask them how much you owe and if you could work something out to repay it to have it removed from your credit.

“They’ll tell you that you need to pay it back immediately and promise they’ll remove it. First off, don’t trust them unless you get it in writing.”

“Okay,” says Joe nodding.

“Seriously, Joe. If you don’t get it in writing, there is no guarantee that they’ll honor the agreement.

“Once you get it in writing, if you can pay it off in full, go for it. However, most of us don’t have large lumps of cash lying around to pay for everything in one go. Instead, ask for a payment plan and state how much you could afford to do.

“If they accept, great!” continued Amy. “If they don’t, then you’ll give them a call again in a couple of weeks.”

Adding Other Unconventional Payments

“Let me ask you, Joe, how well do you pay your utilities and rent?”

“Never missed a payment,” says Joe confidently.

“Didn’t think so,” says Amy with a smile. “Most people don’t know this, but there are some added services that you can take advantage of.  They can increase your credit score pretty easily.

“Experian has something they call Boost. There are other companies that offer something similar. What they do is they include utilities and rent into your credit report. This can help increase your credit score. And, it’s free.”

“That’s awesome!”

“Very much so,” says Amy. “There are others that can even include streaming services or subscriptions as well. I highly suggest you take advantage of it.”

“After all this ass-busting, you’ve managed to improve your credit for car loans in the future,” says Amy. “But it doesn’t stop there.

“To make sure your score doesn’t get tarnished again, you’ll need to follow these steps.”

Learn to Budget and Build an Emergency Fund

“I know to most of us, the idea of budgeting is a nightmare, right?” Amy asks with a smirk.

Joe chuckles.

“The thing is, budgeting allows you to be proactive. It allows you to stay focused on the most important parts of your life. So when a car breaks down, computer breaks, or your fridge needs repair, you’re not forced to go back into figuring out how you’re going to pay for it. Does that make sense?”

“Yeah,” says Joe.

“Unexpected things happen all the time, but they’re only emergencies when we don’t prepare for them. We know they are coming, we just don’t know when.

“What we can do is actively put money to the side as a cushion for when the expected unexpected finally hits. It’s our safety net. You might hear it called the emergency fund too.

“This is the foundation to anything else that you do. Everything else I’ll share with you is the icing tips.”

Consistent Bill Payments to Improve Your Credit for Car Loans

Amy emphasizes the importance of timely bill payments.

Every on-time payment adds a favorable mark on Joe’s credit history. The longer he pays on something, the more trustworthy Joe appears to car lenders or credit card companies.

Keeping Credit Balances Low

“Keep your credit balances low,” Amy advises. “What I mean is, if your limit on a card is $5,000, don’t run it any higher than $1,500. Typically a credit usage of 30% across all credit mixes is the best.”

Wise Credit Card Usage to Improve Your Credit for Car Loans

Amy guides Joe about the art of wise credit card usage.

She explains that maxing out credit cards is horrible. It makes it seem like he cannot manage their credit responsibly.

She also suggests that Joe treat his credit card as a debit card. This means that if Joe does not have the money in his bank account, he will not use it.

Amy tells Joe that at the end of every billing cycle he needs to pay the balance off in full. This helps him avoid high interest rate fees.

“Whatever you do, Joe, don’t close out any credit cards,” she says. “This will remove credit history from your report and can have a negative impact on your score. Keep them open and just don’t use them. If you’re serious about improving your credit for car loans, you need to follow these steps.”

The Credit Utilization Ratio

Amy explains about the credit utilization ratio. This is the percentage of available credit borrowed.

This applies only to revolving credit like credit cards or open lines of credit.

Lenders prefer a lower ratio which can positively affect the credit score. Around 30% is the optimal range to keep it.

Avoiding Unnecessary Credit Inquiries

Each application for new credit can lead to a hard inquiry.

Hard inquiries can have a negative impact on the credit score. Amy suggests avoiding unnecessary credit inquiries.

Instead, she suggests that Joe asks the potential lender or car dealership if there is a way they could do a soft pull. This provides them with the necessary information they need without affecting credit scores.

Diversifying the Credit Mix to Improve Your Credit for Car Loans

“Diversifying the credit mix can be beneficial,” Amy says. “This means having a combination of different types of credit. Think like credit cards, auto loans, retail accounts, installment loans, finance company accounts, and mortgage loans.”

The more of these Joe has, the more balanced he appears.

“You mentioned auto loans,” says Joe. “Does that mean my credit will improve with the car loan I got through you?”

Can Buy Here Pay Here Dealerships Help Improve Your Credit for Car Loans?

Amy smiles. “Yes, our buy here pay here car dealerships offer in house financing with credit reporting as well.”

“Don’t they all?”

“Not at all. In fact, most of them don’t. Most of the local car dealerships like ours get you a car loan but keep you trapped. If you pay off the car, they’re the only ones that know.

“We want to help you get a car loan with us now, even with bad or no credit history. But, we also want to help you improve that credit score so you can get better terms in the future.”

What is In House Financing?

“So then, what is in house financing?” asks Joe.

Amy explains that in house financing is when the car dealership lends the money directly for the car. They do not send it out to a car bank, credit union, or auto lender. Instead, they let you borrow the money for your car directly.

This is often a more flexible option for those with bad credit or no credit.

“While our store does not require a huge down payment, most other car dealerships do,” says Amy.

How they Help with Bad Credit/No Credit Auto Loans

The right in house financing can be a boon for those with less-than-perfect credit. 

These car dealerships often have more flexible credit requirements. These flexible requirements can make it much easier to get approved for a car loan.

“At our buy here pay here car lot, we provide you with many things to help you stay on the road.

Low Down Payment Cars

“We don’t want our customers struggling to put food on the table in exchange for a used car,” says Amy. “Because of that, we offer low down payment options for cars. In your situation Joe, you were able to qualify with as low as $500 down.”

“I can’t thank you enough for that, Amy.”

“While not everyone qualifies that low, many will.”

Free Vehicle History Report

“I provided you the free vehicle history report so you could review the history of the car,” says Amy. “And gave you the option of taking the used car to your mechanic for a third-party inspection.”

Free Car Warranty

“And I’m also providing you a free car warranty to ensure you stay on the road. Plus, we extend the onsite service shop out to you at a discount.

“So, in the event that you need routine maintenance or a repair past the free car warranty, you’ll know you have an affordable place to turn to. Most buy here pay here used car dealerships don’t offer this.”

Improve Your Credit for Car Loans with In House Financing

“Now keep in mind,” continues Amy. “Regularly paying off a car loan through our in house financing options can help improve your credit.

“It’s a great opportunity for people like you. People determined to prove they can handle their financial commitments responsibly. But for those that don’t have that commitment, it’ll do nothing for them.”

“Well yeah, it’s up to me to make sure I pay on time and show I’m responsible now,” says Joe. “Naturally, if I keep paying late or not paying then there’s no reason for it to improve.”

Amy smiles. “Exactly.”

Amy slides a piece of paper over to Joe. “I think you’re ready.”

Joe opens it and finds all the tips they’ve discussed together. It’s his step-by-step plan to improve your credit for car loans.

Joe knows that if he follows it diligently, it can help improve his credit for car loans and any other type of credit mix.

“The last two pieces of advice I’ll give you Joe,” says Amy. “Be patient. This isn’t a sprint, nor a race. This is a lifelong commitment that can set you and your family up for financial freedom.

“And, be generous. Pass this information along to anyone you know who could use it. And while you’re at it, if I’ve brought you any value, I ask that you please show your thanks by referring friends and family.

“The more people I can help, the bigger the impact I can make in our community.”

“Of course, Amy. You’ve been beyond great,” says Joe. “I’ll be sending everyone to you and Westland Auto Sales.”

1. How long does it take to improve a credit score for a car loan?

It depends on the current credit situation. With consistent, responsible credit behavior, one can start seeing improvements within a month or two.

2. Can I get a car loan with a bad credit score?

Yes, there are options such as in house financing provided by Buy Here Pay Here used car dealerships that may help. There are also subprime auto lenders that could assist.

3. What is the minimum credit score required for car loans?

Different lenders have different requirements. Most prime car lenders need a score of at least 680. Yet, most prefer for it to be much higher. In the event that yours is much lower, a tote the note car lot or your job is your credit car lot can help.

4. How does in house financing work?

In house financing is when the dealership itself provides the loan for the car purchase. This can be particularly helpful for those with poor credit or no credit. Many base their decision on your income. However, the more sophisticated and well-operated ones create their own internal model. This model allows them to see the bigger picture of each customer.

5. Can in house financing improve my credit?

Yes, one of the benefits of a used car dealership like this is as long as the buy here pay here dealership reports your payments to credit. If you make your payments on time, in house financing can help you build a positive credit history. This can help increase your credit score.

6. What are the disadvantages of a buy here pay here dealership?

Buy here pay here dealerships have some disadvantages over other types of used car dealerships or auto lenders. Some of these disadvantages are:

• Higher interest rates. A buy here pay here dealership may charge higher interest rates than other car dealers. This is because they are taking a much higher risk by lending to people with bad or no credit.

• Older cars. A buy here pay here dealership may sell older cars that have high mileage of over 160k+.  These cars may not last long or may need frequent repairs and maintenance. This is not always the case. Our own buy here pay here dealerships specialize in 5-7-year-old cars with under 100k miles.

• Strict terms and conditions. A buy here pay here dealership may have strict terms and conditions in their contracts. These terms can limit your rights and options as a buyer. For example, they may need you to make payments in person at their location. They may also repossess your car without notice if you miss a payment. It’s very important to maintain frequent communication at all times.

7. How can I avoid getting scammed by a buy here pay here dealership?

It’s important to note that most car dealerships have no intention of scamming anyone. Good people operate them with good intentions. Yet, there are bad apples out there.

To avoid getting scammed by a buy here pay here dealership, you should do some research and due diligence. Do this before buying a car from them. Some of the things you should do are:

• Check their reputation and reviews online or through word-of-mouth

• Inspect the car thoroughly and test-drive it before buying it

• Ask for a vehicle history report

• Have the used car inspected by a third party

• Ensure they provide a warranty

• Read the contract carefully and understand all the fees and charges

We hope this article has helped you understand the importance of credit and how to improve your credit car loans. It’s very simple but will require patience and commitment.

If you are ready to get a car loan with bad credit or no credit, please visit our website. Be sure to take a look at most of our used car inventory on there too. You can also contact us today for more information on our in house financing options. 

We look forward to hearing from you soon!

Disclaimer: The information provided in this article is for educational purposes only. It is not financial advice. Always consult with a qualified financial professional for personalized guidance.