Does a Title Loan Affect My Credit?
If you’re thinking of applying for a title loan, you may be wondering how the loan will affect your credit. Many individuals who apply for title loans have less than perfect credit and are worried whether using this type of loan will lower their credit score even further.
Title loans are a type of credit product that even individuals with poor and fair credit scores can still qualify for. Unlike with unsecured loans, your approval for a title loan will be based on how much you earn each month and the street value of your vehicle.
Provided that you always make your payments on time, taking out a title loan has the potential to help you improve your credit history, which can help you qualify for various other types of credit in the future.
How Your Credit Score Works
Credit bureaus base your credit score on a wide range of different factors. The score helps lenders quickly see whether you’re an acceptable risk when lending you money. Employers, landlords and insurance companies can also use your credit score, so it’s important that you maintain one that is as high as possible. Here are the factors that are used to determine your overall credit score:
Payment History – 35%
Your payment history makes up the most important part of your credit score. As the name implies, your payment history considers how you’ve made your payments on various credit products. Always making your payments on time will raise your credit score, while having late payments will lower it.
Credit Utilization – 30%
Credit utilization refers to how much of your credit limit you’ve used up on revolving credit accounts, most notably credit cards. For example, if you have a credit card with a limit of $5,000 and have a balance of $2,500, your utilization is said to be of 50 percent.
Having credit cards that are nearly maxed out shows that you’re in debt and a higher credit risk, which lowers your score. This is why experts recommend that you use less than 30 percent of your credit limits.
Length of Your Credit History – 15%
The length of your credit history is the age of the oldest account on your file. The longer your credit history is, the higher your score will be.
Credit Mix and New Credit – 10%
Credit mix is the mixture of different accounts, such as credit cards, consumer loans and mortgages present on your file. Having various types of credit accounts open will increase your score. You should also know that every time a lender checks your credit, this lowers your score by a few points, as it shows that you’re seeking new credit.
Calculate a Loan Estimate
The amount of money you can borrow with a car title loan varies from one lender to the next, but will typically range between $2,000 and $50,000. The main factor that will determine how much you can borrow is the current street value of your car. You can use an online car title loan calculator to get an idea of how much you can get based on your car’s make, model, year and mileage.
How Title Loans Could Improve Your Score
Title loans have the potential of improving your credit score if you make your payments on time each month, according to your lender’s terms. After making a few months of payments, your credit score will begin to increase as your payment history will begin to look much better. Your score will keep improving as you make payments to pay off your loans.