It’s simple, incurring a car loan to finance a vehicle can improve credit? We know that sounds odd. But if you understand how your credit score is calculated, you’ll know that there are five key factors that determine whether you have good or bad credit:

  1. Payment history
  2. How much is owed
  3. Length of credit history
  4. New credit applications
  5. Type of credit used

Your payment history is a record of all the payments you’ve made for your debts. Each time you make a payment, like an auto finance payment, it is reported and recorded. The report shows the amount you’ve paid, how often your payments have been late, and how long it took you to pay your debt. This information plays a major role in determining your credit score. If you’ve missed several payments or were late multiple times, your score is negatively impacted. Miss a few and you end up with bad credit.

The type of credit used is also taken into consideration. There are three types of credit – installment, open and revolving. Installment credit is credit you are paying back on a schedule in specific amount, like an auto financing loan. Open credit is credit borrowed as needed up to a specific limit. The total balance is due at the end of each period. A good example of open credit is a student line of credit. Revolving credit is credit that you pay back by making regular payments in varying amounts depending on your account balance, like a credit card. The best credit that lenders can see on your account is an installment credit. It shows that you are planning ahead and being responsible with your money.

So how does financing a car fit into the equation? Maintaining a clean payment history and a smart portfolio of credit types are two of the best ways to improve your credit. If your credit history is full of credit card charges and late payments, you might want to consider adding an installment credit, like a car loan, to the mix. Simply adding the loan however, will not help much. You have to pay the bi-weekly or monthly amount owed, in full, on time.

As you finance your car, the lender will report regular payments to the Credit Bureau. The Bureau will update payment history each time you make a payment on-time. As a result, your credit will slowly start improving. After a year, your credit will have improved significantly and you can refinance a vehicle at a lower interest rate.

It is important to note that the older the information on your payment history gets, the less it impacts your score. No matter how bad your credit is, most payment logs will only appear on your history for six years. So, if you decide to turn a new leaf, finance a car over a five-year period and you made your payments on time, you will dramatically improve your credit score.


If you are looking for a quick and easy way to put your credit score back on track, stop. Improving your credit score will take time. It won’t happen overnight. At Canada East Rides, we can help put you on the right track to recovery. We believe that any Maritimer should qualify for a loan, own a car and get a shot at improving their credit. Get in touch today.