Young students with a credit card may think that they are doing very good owning one card and regularly making their payments. However, they then find out that they have bad credit when trying to get a car loan. What is going on here and how can bad credit car loans help?
Using One Credit Card Messes Up Utilization
One common misconception that people have about credit cards is that having and using multiple credit cards will hurt their score. That belief is far from the truth. Having multiple credit cards can be very beneficial if a person pays them back quickly and is careful to avoid messing up their utilization rate. This rate indicates how much of your available credit is used with a card.
Those who have a single card are typically playing with fire because purchases can more heavily impact their utilization. A good rate is typically 20 percent but those with scores below 600 usually have rates much higher. Therefore, students who are interested in buying a car are probably hurting their chances by using one credit card exclusively.
How This Problem Affects Car Buying
When it comes time to buy a car, bad credit can affect the experience in many ways. In some instances, it will cause the premium of the loan to increase to a high level. In other cases, it may simply raise the interest rate and make it harder to pay back. Extreme examples find a person being completely refused for a car loan.
Even more problematically, getting a car loan can actually negatively affect a credit score if the score is already low. A student with a limited source of income may become trapped in a difficult payment cycle. However, it is possible to break away from this problem by utilizing a bad credit loan instead of getting a high-interest one.
Getting Bad Credit Loans Can Help
Bad credit loans are designed for those who have a poor credit score and who need help buying a car. For a student who is struggling to overcome bad credit caused by a single credit card, they can be a money-saver. While they typically have slightly higher interests rates, they are also typically available at fairer premium rates and simpler and variable payment cycles.
They are also a great investment because they can help the student build their credit up after having only one source. A student who takes the time to pay their credit card and their loan payment cycles on time is likely to boost their credit score and make it easier to get loans on houses or on a car in the future. As a result, a bad credit loan has many unique benefits for a student with a single credit card.
When I started shopping around for a car, I knew that I wanted something a little different. Unfortunately, I had no idea what to look for, which made things complicated. I visited several different dealerships, but it wasn't until I worked with the right salesperson that I found what I wanted. My salesperson showed me exciting new car models and talked with me about safety features, which really helped me to narrow down my choices. Check out this blog to learn more about finding the perfect car so that you don't have to worry about having buyer's remorse down the road.