Will A Car Title Loan Boost My Credit Rating?

It's the start of a new year and with that comes many resolutions: losing weight, saving money, donating our time to others….and yes…raising our credit score! Our credit history defines who we are when it comes to having purchasing power. Making good on our mortgage, auto loan, credit card and car title loan payments keeps us in good with Experien, Equifax and Trans Union. You know..those three companies that can make or break our status in the credit world.

If you want to raise your credit score, make sure you make your payment on time and for the amount your creditor requires. Having a large balance on a credit card or loan doesn't mean your credit score will go up higher. It can actually harm your score to have to much credit. Your DTI (debt to income ratio) will be higher if you have more outstanding debt.

Car title loan lenders don't typically run your credit when you apply for a loan. They use the value and equity of your car or truck, plus your employment history and income, to determine how much they will loan you. Essentially, your car is your collateral. If you default on your loan payment, they have the right to repossess your car. That is why they require you to hand over the pink slip (title) before your loan is funded. Because they don't run your credit, your chances of being approved for a loan are much greater.

Assuming you make your payments on time and pay off your loan in the allotted loan term, usually 90 days, you will be viewed favorably by the car title loan lender. The benefit of this is that should you ever want to take out another loan with them, they will look at your payment history and see you as low risk. Your chances of getting another loan will be greater.

What if you don't make your payments on time? If you are in default of your loan, the lender will have their inside collections department work with you to make payments. Worst case scenario…you will have your car repossessed. The lender will then have the right to sell your car and recoup their costs from your loan. You will have to endure nagging phone calls and the agony of not having a car but your credit will most likely not be affected. Most car title loan lenders don't report derogatory information to the credit bureaus. KEEP IN MIND the lender may sell your loan to a 3rd party collections agency who will most likely report to the credit bureaus or go after you in a legal battle.

So if you are looking to boost your credit rating, having a car title loan will not help. It may help you when you are in need of quick cash. Making your payment on time to the lender will prevent you from having your car taken from you and will show integrity on your part.

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