Do Title Loans Help Your Credit?

Financial problems can arise for a number of reasons, including unemployment, health problems, or changes in your household such as a divorce or new baby. Regardless of the cause of your financial trouble, it’s crucial to know how to get the cash you need fast. Some people may tap into their savings or borrow from a close friend or family member in this situation. If you don’t have these options, you may want to consider a title loan instead.

It’s important to learn how taking out a title loan could impact your financial situation, or more specifically, your credit.

Do title loans help your credit? It depends. Here’s what you need to know:

Title loans are not like traditional personal loans. A title loan is a secured loan, which means it is supported by collateral. To obtain a title loan, you must use the title to your car, truck, SUV, motorcycle, or RV as collateral .

This doesn’t mean you need to give up your vehicle in order to get the cash you need. You aren’t handing over the keys to your vehicle–you are simply using the title to your vehicle as collateral.

Your lender will put a lien on the title while you repay your loan. In the meantime, you can continue to drive your vehicle as you normally would . Your lender will remove the lien once your loan has been completely paid off. But if you fail to repay your debt, your lender has the right to take possession of your vehicle.

The amount you are able to borrow through a title loan will vary depending mainly on the value of your vehicle. Because your vehicle is used as collateral, you cannot borrow more than it is worth. Your lender will calculate the value of your vehicle by evaluating its make, model, age, condition, and mileage.

The title loan application process is simple and straightforward. Plus, title loans are typically processed quickly, which is why they are ideal for people who are in need of fast cash . If you are approved for a title loan , you can spend the cash on anything you need. 

Before learning how a title loan can impact your credit, you should understand the role your credit plays in determining your eligibility for a title loan.

Your title lender will ask you to consent to a credit check when you apply for a title loan. In other words, yes, your lender will check your credit when determining your eligibility for a title loan. A credit check is required because it allows your lender to review your credit history and assess your creditworthiness, which is a measure of how likely it is that you will default on your loan.

Traditional lenders typically establish minimum credit score requirements for borrowers . If your credit score falls below this minimum, you won’t get approved for a traditional loan. However, you may still get approved for a title loan even if you are not approved for a traditional loan due to your credit score.

It’s true that your lender will consider your credit when determining whether you qualify for a title loan. But your credit is only one factor that will impact your eligibility , which means a less-than-perfect credit score won’t necessarily make you ineligible.

The two main factors that are used to determine eligibility for a title loan are the value of your vehicle and your ability to repay the loan . The value of your vehicle is especially important since it is used as collateral to support your loan.

To put it simply, most credit types are accepted by title lenders , so don’t let an imperfect credit score stop you from applying.

To understand how title loans impact your credit, you must first learn how credit scores are calculated.

A credit score is a number that ranges from 300 to 850 . The higher the number, the better the credit score, and the more creditworthy you are. The ranges are defined as follows:

There are five main factors that can impact your credit score, and some of them have a bigger impact on your overall score than others.

Credit bureaus constantly re-evaluate these factors to keep your credit score as updated as possible at all times . Because of this, your credit score may change frequently depending on your credit activity.

There are three major credit bureaus: Equifax, Experian, and Transunion. These credit bureaus provide credit reports to lenders and creditors , who use the information to assess consumers’ creditworthiness. The credit bureaus do not decide whether you are approved for a loan or new line of credit. This decision is made solely by lenders and creditors. The credit bureaus are only responsible for compiling the information and providing it to them.

The information in these credit reports is provided by third parties, including creditors and lenders.

For example, if you open a new credit card, the credit card company will let the credit bureaus know that you have opened a new line of credit. The credit card company will also send the credit bureaus information on your payment history and the status of your account on a regular basis. The credit bureau then factors this information into the calculation of your credit score.

To put it simply, any information that is reported to the credit bureaus will impact your credit score .

Most title loan companies report to all three credit bureaus. This means information about your loan, including when you take out the loan, how much you borrow, your payment history, and the status of your debt, will be included on your credit report and factored into the calculation of your credit score.

A title loan can impact your credit in several ways. First, it’s important to understand that taking out any type of loan can initially cause your credit score to drop. This is because you are incurring additional debt. Furthermore, your title lender will most likely perform a hard inquiry to check your credit during the application process.

This isn’t the only way that a title loan will impact your credit. Remember, title loans report back to the three credit bureaus, and the information they send will be factored into your credit score. This information includes your payment history, or more specifically, whether you are making on-time, consistent payments. If you make timely payments on your title loan, your credit score may improve. This could have a significant impact since your payment history accounts for 35% of your total credit score.

Taking out a title loan could also affect your credit mix, which is the diversity of your credit portfolio. A title loan may diversify your credit mix, which could improve your credit score . But if your credit portfolio is already diverse, taking out a title loan may not change your credit mix. 

If you want to protect or improve your credit after taking out a title loan, the key is making on-time payments. Missing or making a late payment could negatively impact your credit score. But if you make all payments in a timely manner, you may see an increase in your credit score over the course of the loan.

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