One of the key benefits of a car title loan is that they allow you to borrow money with no credit check. In addition to no credit check, most title loan companies do not report the loan to credit bureaus. This means the loan is not shown on your credit report. So, your credit score is unaffected by a title loan. Given that, is it possible to increase your credit score using a title loan? The answer is yes, and in this article we are going to go over how to use a title loan to increase your credit score. First, we need to understand some basics about how credit scores are calculated.
Key Factors Affecting Credit Scores
There are several factors that go into the calculation of your credit score. Each bureau uses a slightly different equation or algorithm for calculating your score, but they all place significant importance on outstanding debt. And, more specifically, outstanding debt versus credit limits. This is also called credit utilization. Generally, it is recommended that you keep your credit utilization under 30% to achieve a good credit score and under 10% for an excellent credit score.
Other factors that affect your credit score include hard inquires, payment history, credit mix, and credit length. Getting a title loan, with a lender that does not check your credit, will not have any affect on any of these factors. So, how can you use a title loan to increase your credit score, and when is the best time to do so?
Using a Title Loan to Increase your Credit Score:
As discussed, outstanding balances play a large role in calculating your credit score. You can use a title loan to reduce these balances. Because there is no hard inquiry with a title loan, and no reporting to credit bureaus, the loan will not show up on your credit report. Using the proceeds from the title loan to pay off existing balances will increase your credit score. This increase happens quickly.
Benefit versus Cost
The best time to use a title loan to increase your credit score is when the benefit of the improved score outweighs the cost of the title loan. This is usually prior to a large purchase where an increased credit score will allow you to get a lower interest rate on a large purchase. It can also be prior to a job application that requires a credit check.
To find out the costs of a title loan, use our Title Loan Calculator. Fast Title Lenders offers one of the lowest interest rates in the industry. Even with the best title loans, they are more expensive than other forms of credit so it is important to weigh the costs carefully. Now, let’s take a look at a an example of lowering credit utilization with a title loan:
Credit Utilization Example:
For example, if you have $10,000.00 of available credit and your balance is $6,000.00, then your credit utilization is 60%. To increase your credit score, you would need to get this percentage under 30%. Getting a $3,000.00 title loan and paying down the outstanding balance will accomplish this. Depending on your score and other factors affecting your credit, the increase can be significant.
To find out how much different amounts will affect your credit score you can use a credit score simulator. These are provided by many of the credit monitoring companies including Credit Karma. You can plug in different amounts to see the amount of the increase to help decide if it makes sense for your particular situation.
Benefits of using a Title Loan to increase your Credit Score
The main benefit from using a title loan to increase your credit score is the ability to get a reduced interest rate on a loan for a large purchase. This can include a home or other property. Depending on the amount you can increase your score, the size of the purchase, and the difference in interest rate, it may be worth a significant amount of money. The other reason to use a title loan to increase your credit score is prior to a background check for a new job where a credit check is required.
Title Loans do not require a credit check and are not reported to credit bureaus. You can use this to your advantage if you need to quickly lower your outstanding credit card debt to increase your credit score. This is usually done prior to a large purchase, job application that requires a credit check, or other event where the benefit of a higher credit score outweighs the cost of a title loan. To find out more about title loans read our complete guide on how to get a title loan.