If you have bad credit, adding a loan to the mix might not be a bad idea. It may seem counterintuitive, but The Los Angeles Times suggests that a mortgage, personal, auto or student loan can actually help improve your credit score. Installment loans are paid off over a set period of time, with a specific amount of payments, unlike credit card payments which can continue indefinitely if you’re not careful.
Making timely payments and continuing use of your credit cards is a good place to start when you want to rebuild your credit. Once you’ve substantially reduced your debt, you may want to consider applying for a bad credit car loan for the car you’ve had your eye on, but have put off buying to work on your finances. Trying to apply for an auto loan before your credit score has had a chance to heal a bit runs the risk of getting a high interest rate.
However, if you need a loan and absolutely have to accept a high rate, contributing at least 20 percent of the price can give you the option to refinance in a few years, in which time your credit score will have a chance to improve further, according to the news source.