Time to buy your first car!
Oh now, but my credit is bad!
Buying your first car is a major life milestone. Whether it’s for commuting to work, school, or gaining more independence, a car is more than just a vehicle—it’s a tool for opportunity. But before you can finance a car, you’ll need to build strong credit. If you’re starting from scratch, don’t worry. This guide will show you exactly how to use secured credit cards, credit-building loans, and other smart strategies to build the credit you need to qualify for an auto loan—with better rates and more confidence.
Why Credit Matters When Buying a Car
When you apply for a car loan, lenders check your credit report and score. Here’s why that matters:
- Loan Approval: Strong credit increases your chances of getting approved.
- Interest Rates: A better score means lower interest rates, saving you thousands.
- Loan Terms: Higher credit scores often qualify for longer terms and better monthly payments.
- Down Payment Options: Good credit can reduce or eliminate the need for large upfront payments.
Building credit before applying gives you more negotiating power and better financial options.
Understanding Credit Basics
Before jumping into the how-to, let’s break down what credit is and how it works.
What Is Credit?
Credit is your ability to borrow money and repay it responsibly. It’s tracked in a credit report and scored using several factors:
- Payment history (35%): On-time payments are the biggest factor.
- Credit utilization (30%): Keep balances low relative to your credit limit.
- Length of credit history (15%): Older accounts help more.
- New credit (10%): Too many applications in a short time can hurt your score.
- Credit mix (10%): A variety of credit types (cards, loans) looks good to lenders.
A strong score (usually 670 or higher) can unlock favorable auto loan terms.
Step 1: Start with a Secured Credit Card
What Is a Secured Credit Card?
A secured credit card is a beginner-friendly tool to build credit. You pay a refundable deposit—usually \$200 to \$500—which becomes your credit limit. Because you’re putting up collateral, banks are more likely to approve you, even with no credit history.
How to Use It Effectively
- Charge small amounts: Use it for gas or subscriptions.
- Pay in full: Never carry a balance; it builds a positive payment history.
- Keep usage low: Ideally under 30% of your credit limit.
- Monitor activity: Check statements and credit score regularly.
After 6–12 months of responsible use, many issuers will refund your deposit and upgrade you to an unsecured card.
Recommended Secured Cards
- OpenSky® Secured Visa ® Credit Card
- First Progress Platinum Select MasterCard® Secured Credit Card
- OpenSky® Plus Secured Visa® Credit Card
Step 2: Consider a Credit Builder Account
A credit builder Account is another great way to demonstrate creditworthiness.
How It Works
- You apply for a loan, but the lender holds the funds in a savings account.
- You make fixed monthly payments over 6–24 months.
- Once fully paid, you receive the loan amount.
- All payments are reported to credit bureaus.
Benefits
- Establishes payment history
- Builds savings
- Easy approval since it’s secured
Where to Find Them
- Credit unions
- Local banks
- Online lenders
Step 3: Use Rent and Utility Reporting Tools
Even if you don’t have a credit card or loan yet, you can still build credit through tools that report alternative payments.
Services to Consider
- Experian Boost: Adds utility and streaming payments to your Experian report.
- RentTrack or Esusu: Reports rent payments to all major credit bureaus.
- RENT REPORTERS is another great option!
These don’t carry debt but can strengthen your report over time.
Step 4: Become an Authorized User
If you have a parent or trusted adult with good credit, ask to be added to one of their cards.
How It Helps
- Their positive payment history can show up on your report.
- You don’t have to use the card (or even have access).
It’s a low-risk way to get a boost while you’re building independently.
Step 5: Maintain Credit Health
Once you’ve started building credit, the next step is keeping it strong.
Best Practices
- Pay all bills on time: Set reminders or automate payments.
- Avoid opening too many accounts: Each application adds a hard inquiry.
- Keep credit utilization low: Under 30%, preferably 10%.
- Check your credit report: Use AnnualCreditReport.com or apps like Credit Karma.
These habits make you more attractive to lenders and help maintain a steady upward score trajectory.
Step 6: Check Your Score Before Shopping for a Car
When you’re ready to buy, check your credit score. Knowing your score lets you:
- Estimate interest rates
- Compare lender offers
- Negotiate with confidence
If your score is above 670, you’re likely to get competitive auto loan offers. If it’s lower, you may still qualify, but rates may be higher.
Step 7: Apply for an Auto Loan Smartly
When applying:
- Shop around: Compare rates from banks, credit unions, and dealerships.
- Apply within a short window: Multiple applications within 14–45 days only count as one hard inquiry.
- Bring documentation: Proof of income, employment, ID, and insurance.
If your credit is still thin, consider a co-signer with good credit to strengthen your application.
Conclusion: Build Now, Benefit Later
Building credit takes time—but every payment, every smart move adds up. Start with a secured credit card, a credit builder loan, or rent reporting services. Stay disciplined, track your progress, and keep your financial goals in mind.
By the time you’re ready to buy a car, you’ll have the credit strength to qualify for better terms, lower payments, and long-term financial confidence.
Start today, and drive your financial future forward.