Do Title Loans Affect Your Credit
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At some point in most people’s lives, there will come a time in which they need quick cash but won’t know where to turn. There are so many reasons that could cause this like an unexpected medical emergency or the sudden loss of employment. Some may be able to borrow money from close relatives or use some savings. But for those who don’t have that privilege, the options can be quite limited and costly.
Luckily, car title loans are available in many states and are a convenient option to help one get back on track. Those interested in this option often ask “do title loans affect your credit?” and we are happy to answer that as long as you make all your payments properly and do not default on the loan, the title loan will not hurt your credit whatsoever. This is because we don’t report your loan progress to the credit bureaus, making the loan a great solution for those who simply need cash without all the hassles or future negative implications that a traditional loan can have. That’s the great thing about auto title loans, they are based on your car’s value thus avoiding all the reliance on your credit score or history.
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Montana Capital Car Title Loans serves applicants from more than 30 States! By connecting with a trusted lender, we help people apply for a title loan safely and quickly. Call us now and let our support team guide you.
How credit score works
Of course to understand the answers to questions like “do title loans affect your credit?” or “does defaulting on a title loan affect your credit?”, you must understand how the credit score itself works. The good news is this can be simpler than you think. There are several factors that affect the score which is a number in the range from 300-850.
As we mentioned before, payment history is probably the main thing affecting your credit rating. Lenders want to make sure that you can pay back the money you borrowed and therefore knowing that you have a good credit score, and therefore a good payment history, is important to many of them, especially for those giving out unsecured loans. Another factor that affects your credit score is the utilization rate, or in other words, how much of the credit you were being given is used. For example, if you have a credit card with a limit of $1000, lenders want to see you are not maxing out and using all of this limit every month. Instead, to increase your credit score, make sure to utilize only a portion of the available credit, preferably around 30%.
Another very important factor that affects your credit score is how new it is. Lenders want to see that you’ve had different forms of credit for lengthy periods. So getting several new credit cards at once, for example, can negatively affect your score because it shows the lender you are very much in need of credit.
Title loans and credit score – do they affect each other?
Many people invest a lot of effort in building their credit score. Getting to a good credit rating can take years and so it makes sense that people don’t want all that hard work to go to waste. There are different ways credit can be affected but the most important factor is your credit history. Your payment history includes information that includes whether payments were made on time and if there is any debt that is accruing.
Some credit bureaus, like Experian, suggest that your credit history makes up around 35% of your credit score. Since this makes such a large effect on your credit score, it is important that you make all your payments in a timely manner and pay as much as possible of what you owe. So how does this connect to title loans? Do title loans affect your credit? For the most part, lenders do not report your payment history to the credit bureaus so the title loan has no effect on your credit. However, there are some companies who do report that you have defaulted on the loan, especially if the default is large and you have reached a vehicle repossession, a common repercussion for those who have severely defaulted on the loan. Make sure to ask your chosen lender about their policies regarding payment history reporting to the credit bureaus.
Another way a title loan could affect your credit score is by running a credit inquiry in order to approve you for the loan. Running your credit is a known parameter that can affect your credit score negatively and some lenders check your credit before approving the loan. However, unlike payment history, this factor has a very small effect on your credit and for the most part, a single inquiry will not have a lasting effect on the credit score.
How can a title loan hurt your score
So now that you know more about the question “will a title loan affect my credit?”, it’s time to see how title loans can actually help improve your score. Raising your credit score is important so you can easily be approved for loans, credit cards, and other funding in the future. It is not a short process and it takes a lot of financial responsibility and work to improve your credit score. But once you are successful you will be able to enjoy better terms and more options so this dedication is worthwhile. Most title loan lenders don’t report your information to the credit bureau so a title loan is most likely to never improve your credit score. However, one reason a title loan is beneficial is that many lenders don’t check your credit, meaning you won’t have a credit inquiry on your report. As we’ve mentioned, gaining several credit inquiries in a short period of time can negatively affect your credit rating so you want to avoid this.
Unlike many traditional lenders, auto title loan companies are often able to approve customers without checking credit, relying instead on their collateral and proof of ability to repay the loan. Additionally, you may find some lenders who do report your performance on the loan to the credit bureaus, and so making your payments on time and lowering your debt can improve your score tremendously for these types of loans. Make sure to always ask your lender regarding their credit reporting policies.
How can a title loan hurt your score
We understand that the question of “does a title loan hurt your credit” can be important to many people. You may have a very good score, or are in the process of getting it up, and you don’t want the fact that you need a title loan to hurt all that process. We understand that and want to make sure you know that as a lender we have no intention of hurting your credit score. There are two main reasons a title loan can hurt your credit:
Reason no. 1
In order to be approved for a loan, many lenders perform an inquiry. One credit inquiry isn’t likely to affect your score but several of them can be hurtful. Make sure to shop around smartly by asking the lenders whether they check your credit and request only those who you think are a good fit for your loan to perform an inquiry.
Reason no. 2
When defaulting on your loan and going to repossession, some lenders will report your payment history to the credit bureaus. This is an extreme case since most customers do not reach repossession but make sure to ask your lender about their policies in such cases. Also, make sure to take a loan which you can afford and pay back in a timely manner, avoiding any impact on your credit score.
Do title loans affect your credit?
We hope we’ve answered the question “do title loans affect your credit?” but if you still have questions or are looking to apply for a title loan, our loan representatives will be happy to help! Give us a call today!