Did you know that buying a car with a loan is one of the best ways to reestablish your credit after you have a bankruptcy? Chances are good that, if you are like many people, you have been concerned about how a bankruptcy will impact your overall credit score. It is important to be aware that a bankruptcy will negatively impact your credit score, but if you have understand what exactly goes into your credit score, then you have a better chance of improving it.
Here are some of the factors that comprise your credit score that you should be aware of as you begin to think about buying that car with a loan:
New credit takes up about ten percent of your overall credit score. This means that for every new credit line you have, your credit score will be impacted. Credit lines include credit cards and loans, in most cases. If you have a credit line that you are paying off on time, then you will be proving to future lenders that you are financially responsible. Therefore, it’s okay to have a credit line, as long as you are paying it off.
The amount of money that you owe will impact your credit by about thirty percent. The amount owed includes all of your credit card debt as well as other outstanding debts, such as your car loan. The amount you owe will be factored into your income when it comes time for a lender to assess your overall credit risk. Owing money is okay. However, if you are asking for a loan that would require you to owe more money than you make, then you’ll need to reassess your options, in most cases.
Types of Credit Used
We always encourage our customers to only use credit when they need it. Buying a car is certainly a need. However, having a huge amount of credit card debt may indicate that you are spending money on things you might not actually need. The type of credit you owe accounts for about ten percent of your overall credit score.
Contact us today for more information about how your credit score impacts your car loan – and how a car loan can actually help to improve your credit!