Can a car loan help rebuild your credit?

A car loan can help you rebuild your credit, but only in one way: by adding a record of payments made on time, month after month. Payment history is the most important part of your credit score. This guide explains how a car loan shows up on your credit report, whether paying bi-weekly makes a difference, and what can undo your progress.

Key takeaways

• Payment history is the most important part of your credit score.

• A car loan helps only if the lender reports it to a credit bureau. Ask which bureau it reports to.

• Paying bi-weekly does not count double. What matters is that every payment arrives on time.

• Late or missed payments stay on your credit report for up to 6 years.

• No one can remove accurate information from your credit report. Rebuilding takes time and on-time payments.

How does a car loan show up on your credit report?

Lenders send information about your credit accounts to Canada’s two main credit bureaus, Equifax and TransUnion. Your credit report can show, for each loan, when you opened it, how much you owe, and whether you make your payments on time or miss them.

Credit bureaus update your report at least once a month. Each on-time payment adds to your payment history. Each missed payment is recorded too.

One thing to check before you sign: Equifax Canada says some lenders report to both bureaus, some to just one, and some to none. A loan that is never reported does nothing for your credit history. Ask the lender which bureau, or bureaus, it reports to.

Why on-time payments matter most

Several things shape your score. Two of them matter most here:

• Payment history. It is the most important part of your credit score.

• Types of credit. It is better to have different types of credit, and you may have a lower score if you only have one type of credit product.

A car loan is paid in fixed instalments over a set term, which is different from a credit card. If a credit card is the only credit on your file today, a car loan adds a second type.

Keeping accounts open and active for a long time may also help your score. A car loan paid on time for its whole term builds that kind of long, steady record.

Bi-weekly or monthly: does it matter for your credit?

Not for the record itself. Credit bureaus update your report at least once a month, and what builds your payment history is each payment arriving on time. Two bi-weekly payments do not count as two good marks where one monthly payment would count as one.

Where payment frequency does matter is your budget. If you are paid every two weeks, a bi-weekly payment that comes out right after payday can be easier to cover than one large monthly payment. That makes it less likely a payment bounces.

Payment frequency can also change the total you pay over the loan. Ask the lender to show you the total cost for each option before you choose.

Set up your payments so they never bounce

Car loan payments are often set up as a pre-authorized debit (PAD), which lets the lender withdraw the payment from your bank account when it is due. If there isn’t enough money in the account, your bank may charge you non-sufficient funds (NSF) fees.

A few habits help:

• Choose a payment date that falls after your payday.

• Ask your bank about balance alerts. Some banks can notify you when your chequing balance drops below an amount you set.

• Check your account each month to make sure the withdrawal matches the amount you agreed to.

If you think you will have trouble making a payment, contact the lender right away, before the payment is missed.

What can undo your progress?

Missed payments

Late or unpaid loans stay on your credit report for up to 6 years. One missed payment can stay on your file far longer than the months of good payments around it.

Applying for a lot of credit at once

How often you apply for new credit is one of the factors in your score. A lender’s credit check is recorded as an inquiry, which stays on your report for 3 years with Equifax and 6 years with TransUnion. Sending your application to many places at once adds inquiries.

A payment that does not fit your budget

A payment you can keep up for the whole term does more for your credit than a bigger car you struggle to pay for. Choose a vehicle and a payment that fit your budget. A down payment or a trade-in lowers the amount you borrow.

How long does rebuilding take?

There is no set timeline, and improving your credit score takes time.

Two things happen at the same time while you rebuild. New on-time payments build up your history, and old negative items come off your report on a fixed schedule:

• Late or unpaid credit cards and loans: up to 6 years

• A consumer proposal: 3 years after you pay off the debts in it, or 6 years after you sign it, whichever comes first

• A first bankruptcy: usually 6 years after discharge

If you are in a consumer proposal now, our guide to car loans after a consumer proposal explains how those applications work.

Watch out for “credit repair” promises

Accurate information on your credit history cannot be changed or erased. Anyone who offers to remove accurate late payments, a proposal or a bankruptcy from your file for a fee cannot do it. On-time payments are the only way to build a better record.

How to check your progress

Checking your own credit report or score does not affect your score.

• Your credit report: free online from both Equifax and TransUnion, updated every month.

• Your credit score: Equifax provides a free score in all provinces and territories. TransUnion’s free score is only for Quebec and Ontario residents, so in Manitoba, Equifax is the bureau with the free score.

A few months after your first payment, look for the car loan on your report and check that your payments show as on time.

Applying for a car loan through Auto Approved

Auto Approved is a Winnipeg dealership, not a lender. We arrange financing through lenders, and each lender decides based on its own criteria. We do not pull your credit ourselves. A lender reviewing your application may check your credit, and in Manitoba your consent must be obtained in advance in most cases.

Our financing application takes about two minutes and does not ask for your SIN. If you’d rather ask questions first, call (204) 781-9992. When you talk to us, ask which credit bureau a lender reports to. It is a fair question, and the answer matters for your credit.

Frequently asked questions

Does a car loan build credit?

It can, if the lender reports it to a credit bureau and you make every payment on time. Your payments then become part of your payment history, which is the most important part of your credit score.

Do bi-weekly car payments build credit faster than monthly payments?

No. Credit bureaus update your report at least once a month, and what counts is that each payment arrives on time. Bi-weekly payments can still be easier to budget if you are paid every two weeks.

How soon will a car loan show up on my credit report?

Credit bureaus update your report at least once a month, and lenders report on their own schedules. Check your free report a few months after your first payment to confirm the loan is there.

Will a car loan hurt my credit at first?

When a lender checks your credit, the bureau records an inquiry, and how often you apply for new credit is one of the factors in your score. Applying in one place, rather than many, keeps the number of inquiries down.

Can I get a car loan to rebuild credit after a consumer proposal?

Yes, you can apply. Each lender decides based on its own criteria. Read our guide to car loans after a consumer proposal for how it works.

What credit score do I need for a car loan?

Each lender sets its own bar. Our guide to what credit score you need for a car covers how Canadian scores work and what lenders look at alongside the number.

This article is general information, not financial or legal advice. Lenders make the credit decisions on any financing, and credit bureau policies can change. Check with Equifax or TransUnion for current details.