The first and most important step is to decide whether you want to do something about your bad credit. It isn’t easy to turn bad credit into good credit. You have to want to develop good credit and be committed to doing the things necessary to build good credit. If you make the commitment you should be able to do it.
A car loan is a good way to either reinforce a record of bad credit or to rehabilitate to good credit. The Buy Here Pay Here industry specializes in helping customers with bad credit who cannot get financed for a vehicle elsewhere.
Choose a Trustworthy Car Dealer
Regrettably used car dealers and many Buy Here Pay Here dealers have a reputation for being shady and taking advantage of customers. It will be an uphill battle to fix bad credit if you are dealing with a dealer who doesn’t care whether or not you succeed.
Make Sure Your Dealer Reports to All Three Credit Bureaus
There are three major credit bureaus: Equifax, Experian and TransUnion. Most used car dealers in the Buy Here Pay Here industry either do not report to credit bureaus or only report to one or two of the bureaus, trying to minimize their cost, effort and risk of mistakes. This does not help you as the customer. We believe that reporting to all three major credit bureaus will help you fix bad credit quicker than if we only reported to one or two bureaus.
Schedule Payments Around Your Pay Dates and Pay Periods
Budgeting expenses can be tough and sometimes we have a lot of conflicting calls on our money. Your car payment is one of the very most important payments you have, and the one where consistent timely payment will help you fix your bad credit. If you are paid bi-weekly (every two weeks), ask to have your payment set up bi-weekly for the day after you are paid. If you are paid twice each month (semi-monthly), ask to have your payment set up for the day after you are paid. This will help minimize the temptation to spend money on something other than your car payment and will help you fix your bad credit.
Enroll in an Automatic Payment Program
Most reputable dealers will have an automatic payment program where you can have your payments made for you automatically each time they are due. At Integrity Auto Finance we have an AutoPay program that so long as you are enrolled can permit you to lower your interest rate by one point for each year you remain enrolled, subject to a minimum. It also enables you to earn “AutoPay Rewards” which are funds that can be used for repairs, routine maintenance and trade-in value.
Pay on Time to Avoid Late Fees
Most finance companies have late fees that are charged if you pay more than ten days late. These late fees add to your cost and are a signal to you that you are not fixing your bad credit and because interest continues to accrue on the payment that is late you actually have to pay more interest, making it harder to succeed.
Use a Trade-In to Accelerate the Process
When you trade in a vehicle you have financed, the finance contract on the trade-in is typically paid off, sometimes only out of the value of the trade-in, and sometimes by having a balance due in excess of the trade-in’s value added to the note on the new vehicle. Either way it should be reported as a paid off car note, helping to repair bad credit and build good credit.
Communication is Key
Sometimes “life happens” and you don’t have the money to pay all of the payment due. When this happens it is very important to reach out to your finance company, let them know, and see if there is something they can do to help, whether that is to accept a partial payment, defer part of the payment, or assist you in some other way so that your payment history can stay on track to fixing your bad credit. Don’t be bashful. If you were smart and selected a reputable dealer and finance company they should recognize that it is in their economic interest to work with you, not against you. You probably will need to make a good faith payment and to provide evidence of your hardship, but in return you should get the benefit of additional time to get caught up and more importantly to avoid a repossession that will set you back in your efforts to fix bad credit.
We can’t promise that making timely payments and paying off a car loan will absolutely fix bad credit — you could be overwhelmed by other negative factors, such as defaults or garnishments on prior car loans, medical bills or student loans that go into default. Even then, however, the positive effect of making timely payments and paying off a car loan should add some improvement, plus it will make it easier for you to get car loans in the future.