Your “credit” refers to your ability to borrow money under the condition that you will repay it with interest in the future. Having good credit is important. Your credit score can impact your ability to buy a house, finance a new car, or secure student loans to get a higher education. A solid credit score can also make it easier to pass background checks conducted by potential employers or landlords.
There’s no doubt that credit plays a huge role in your life. Before making any financial decision, it’s important to consider how your choice will impact your credit. For this reason, if you are thinking about taking out a title loan, you need to learn how this decision could affect your credit. Do title loans build your credit? Do title loans hurt your credit? Here’s what you need to know:
Can You Get A Title Loan With Bad Credit?
The first question on your mind might be, “Can I get a title loan with bad credit?” You typically need to meet a minimum score requirement to qualify for a traditional personal loan. However, title loans are not traditional personal loans, so the eligibility requirements are not the same.
You will need to consent to a credit check as part of the title loan application process. The lender will evaluate your credit when determining your eligibility. However, your credit isn’t the only factor that is used to determine if you are eligible for a title loan.
Remember, a title loan is secured by the title to your vehicle. Because of this, the title loan company will consider your vehicle’s value when determining your eligibility for a title loan. Other factors, including your ability to repay the loan, can also impact your eligibility.
Because your credit isn’t the sole factor that determines your eligibility, you may still qualify for a title loan even if your credit isn’t perfect. In fact, many people who don’t qualify for traditional personal loans due to their credit can still qualify for title loans.
Title loan companies accept most credit types, so don’t let a less-than-perfect credit score or your fear of a credit check stop you from getting the money you need.
Do Title Loan Companies Report to Credit Bureaus?
A credit bureau, which is also known as a credit reporting agency, is a company that is responsible for collecting consumers’ credit information. Lenders can pay to access this information when determining whether a specific applicant is eligible for a loan. The three main credit bureaus are TransUnion, Equifax, and Experian.
If you’re thinking about taking out a title loan, you may be wondering whether your lender will report your loan information to the credit bureaus. Your title loan company will likely report your information, which means the payment history on your title loan will likely appear on your credit report. Not only will it appear on your credit report, but it could also impact your credit.
What Factors Can Impact Your Credit Score?
To understand how a title loan can impact your credit, it’s important to learn how credit scores are calculated. A number of factors can impact your credit score, including:
- Payment history: Your payment history is your record of paying your credit accounts. Missed or late payments can negatively impact your score. This accounts for 35% of your credit score, which makes it the most important factor in credit scoring.
- Credit usage: This is a measure of how much of your available credit you are currently using on your revolving accounts such as credit cards. Using more than 30% of your total available credit can negatively impact your score. This factor accounts for 30% of your credit score.
- Age of credit accounts: This refers to how long your current credit accounts have been active. Having credit accounts that have been open a long time indicates that you are a responsible borrower. The higher the average age of your credit accounts, the higher your credit score might be. This factor accounts for 15% of your credit score.
- Credit mix: Your credit mix is a measure of the diversity of your credit accounts. Ideally, you should have a healthy mix of installment credit and revolving credit accounts. The more diverse your accounts are, the higher your score might be. This accounts for 10% of your total score.
- Hard inquiries: Every time you apply for a new line of credit, it is likely that the prospective lender will conduct a credit check, which shows up as a hard inquiry on your credit report. Having a lot of hard inquiries appear in a short amount of time indicates that you are in financial trouble, which can negatively impact your credit. This accounts for 10% of your score.
Each of these factors can impact your overall credit score.
How Can Title Loans Impact Your Credit?
At this point, you should have a basic understanding of how your credit score is calculated. Now it’s time to learn how a title loan can impact each of the factors that are used to calculate your credit score.
- Payment history: It’s crucial to make on-time payments on your title loan. Doing so will improve your payment history, which could improve your overall credit score over the course of your loan. Remember, this accounts for 35% of your credit, so it has a huge impact on your score. Missing or making a late payment could lead to a significant drop in your credit score.
- Credit usage: Because a title loan is not a revolving credit account, it will not affect your credit usage.
- Age of credit accounts: Taking out a title loan will add a new credit account to your credit history. Because this is a new account, it will lower the average age of your credit accounts, which could negatively impact your credit. However, it only accounts for 15% of your score, so the impact should be small.
- Credit mix: Taking out a title loan may or may not increase the diversity of your credit accounts. If it does make your credit accounts more diverse, this could slightly improve your credit score.
- Hard inquiries: The title loan company will likely perform a credit check when processing your application, so a new hard inquiry will appear on your credit report. This may cause your score to take a slight dip, but since hard inquiries only account for 10% of your score, it shouldn’t have a huge impact.
The Bottom Line: Do Title Loans Hurt Your Credit?
The bottom line is that a title loan will impact your credit. Taking out a title loan could cause a slight drop in your score, but should be temporary. In the long run, your actions will determine whether your loan has a positive or negative impact on your credit.
If you want to build your credit, it’s crucial to make consistent, on-time payments on your title loan. Making a late payment or missing a payment altogether could negatively impact your score. To protect your credit, do not make the mistake of borrowing more than you can afford to repay.
You should also make sure you understand when your payments are due and how to make payments. This way, you won’t accidentally miss a payment or make a late payment due to a simple misunderstanding.