Does taking out a car title loan help or hurt my credit?

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Credit is easy to manage when you know how. Car title loans is an answer but it depends on making on time payments and how you use the proceeds.

First you need to know if the car title loan lender reports to the credit agencies. We know all the ones who do and we also know the ones who don’t. Some car title loan lenders never pull credit at all and some do but only to see if you are about to financially crash or in bankruptcy right now. Again, we know this so just give us a ring at 480-405-8877. You can even call TMG Loan Processing, the largest car title loan processor in the nation and they can help you as well.

Car title loan credit agency effect

Now onto the answer…

THE “YES” PART OF THIS ANSWER: Let’s explore first how any new debt can affect your credit score. According to Forbes on credit scores the three most important things that make up a good credit score is on-time payments, the amount of debt you have verses your open credit (will explain this in a minute) and how long you have had a credit history.

10% of your credit score is based on the TYPE of credit accounts you have. Revolving credit, like a credit card or even an installment loan (like a car title loan if it’s structured over months) will help your score more than other types of loan.

Let’s say a credit card gives you a $5000 open line of credit and you used up $4999 of it leaving $1 open. This is poor credit utilization and will not be a positive. If ALL your lines of credit is mostly used up, then you will probably not gain traction on your credit.

When you pay down your credit, you leave more open and more open is POSITIVE. A trick some people use is to take out a car title loan and put those proceeds into paying off credit cards. This leaves several of your cards with lots of open positive space and the car title loan at FIRST shows you have credit on that loan but it’s all used up. As you make payments on the car title loan, this is now a NEW open POSITIVE which now you added more weight to your score. Remember a car title loan is like any other loan.

So the answer is yes, if you use it for the other bills that report to your file.


THE “NO” PART OF THIS ANSWER: When you first take out the car title loan you will find that you just added to your debt load. If you went to get MORE credit right after taking out the loan, the lender or credit card company will see this and they might now give you the loan. It may look like you are just trying to get loans and credit and then over-extend yourself.

The more you make on-time payments on your car title loan, the better and more positive it looks and in a few months, this “no” will turn into a “yes” and if you pay it off over a few months completely it’s a solid YES!

If you are trying to get a home and need to raise your credit score or if you are going to get a new car and want your interest rate to drop, then employ this strategy. Just don’t keep taking out loans and missing payments because your score will tank and your ability to carry that debt will be too much.

Bottom line… use a car title loan lender WHO REPORTS to the credit bureaus your positive payments. The best ones are the ones which report BUT does not use your credit heavily to get the loan. That’s really the beauty of a car title loan. It can put you, if used right, on the path to low interest rates on all your future loans.

Title Loan improves FICOSo use these tips to get the most out of your car title loan:

  1. Get enough money to pay DOWN some revolving credit cards and the extra cash you need.
  2. Get your credit score for free.
  3. If you have a credit card, most will allow you to get your score from their site. Monitor it!
  4. Make sure you know the APR of all your credit cards. Use a spreadsheet and list them all. Pay down the highest and leave the lowest. As you pay off the highest, every month, you will see your credit improve.

Remember a simple rule in improving your credit as you pay down your credit cards… never pay the minimum. Whatever they ask for, pay more…even if its a little… you will notice your payments lower each month. So “Pay the Highest Rate” and “Pay more than what they ask”.

Finally if you find that you are swimming in debt and you are having a problem paying bills; it maybe time to call the creditors and tell them that you need a lower payment. This is better than not paying and you can get out of this problem with a little breathing room. Life gets better when you control and have courage to face the problem. Life get’s worse when you let the problem run your life.