As you get ready to sign your bankruptcy documents, you probably are well aware of the fact that your credit score will drop as soon as your lawyer files the papers. This can be expected with any bankruptcy case, but this doesn't mean you have to settle for poor credit. In fact, you can start working on rebuilding your credit almost immediately after filing, and one of the best ways to increase your credit score is through auto financing.
How Bankruptcy Affects Credit
Bankruptcy is considered one of the worst things you can do for your credit, and this is why it will remain on your credit report for 7 to 10 years, depending on which branch you file. The reason bankruptcy affects credit is because credit is based on your ability to repay your debts and manage your money. If you file bankruptcy, lenders and credit bureaus view this as the inability to manage your money.
The downside to this is that there are times when people encounter major hardships in life, and these hardships lead to major financial problems. This means that even if your financial problems were not your fault, having a bankruptcy listed on your credit report will still come across as a derogatory item.
How Getting A Loan Improves Your Credit Score
Getting a loan of any kind can be helpful for your credit score. The way it helps is by adding positive payment history to your credit report. A car loan is an installment loan, which is a type of loan that requires making payments that are made up of principal and interest. There are other types of installment loans too, but a car loan is the most popular type.
With your installment loan, you will have to make payments each month. Each time you make a payment, the lender will post this to your credit report, and every payment made on time will help your score increase. You will need to make sure you make your monthly payments on time each and every month if you want this to help your score increase.
Your credit score is comprised of numerous things, but 35% of it is based on your payment history. This means that over one-third of your score is based on the way you pay your bills, and this is why getting an installment loan is one of the best things you can do to rebuild your credit after filing for bankruptcy.
How To Get Auto Financing With Bad Credit
The downside to going to a bank to get any type of installment loan is that the bank will check your credit. If you have a low credit score, you might not be able to get approved for the loan. There are other options, though. One of the best options you have is to look for an auto dealership that offers financing for people with bad, little, or no credit. These dealers are usually able to get loans for anyone that applies, and applying for a loan will be your first step towards rebuilding your credit.
There is one thing you should make sure of when you apply for a car loan for this purpose, which is to ask if the lender reports to credit bureaus. While most do, there may be some that do not. If you get a loan with a lender that doesn't report, it will not help your credit score at all.
Getting auto financing can make a huge difference on your credit after filing for bankruptcy. If you would like to learn more about this or find out if you can get approved for a loan, contact a dealer such as Leopardi Auto Sales.