Tips & GuidesCan You Use A Car Loan To Increase Your Credit Score?

Can You Use A Car Loan To Increase Your Credit Score?

April 05, 2023

Bad credit? While it always seems far too easy to lose points on your credit score, building them up can feel much harder. So, what can you do to increase your credit score to enjoy a higher credit rating?

Australia’s credit reporting agencies utilise a Comprehensive Credit Reporting system to determine each person’s credit score. In essence, this means they take into account good behaviour, not just bad behaviour when considering each score.

As a result, if you prove yourself to be responsible with credit, by making your payments on time and paying down your debts, this will allow you to increase your credit score over time.

So, to answer the question posed in this blog post: Yes, you can use a car loan to increase your credit score! But, there are some important factors you need to know to get it right.

What is a Credit Score?

Before we go any further, let’s quickly cover the basics. What is a credit score?

A credit score is a numerical representation of your credit report. If you have bad credit, you will have a lower credit score. If you have good credit, your credit score will correspondingly be higher.

So, what’s in your credit report? Your credit report contains all your recent dealings with credit, including any credit applications you have made, any credit accounts in your name, and any missed payments or defaults.

There are three major credit reporting agencies in Australia – Experian, Equifax and illion – each of which grade their credit scores slightly differently. To give you an example of how bad credit compares to good credit, this is how Equifax grades it.

  • Below Average: Credit score of 0 (or below) to 459
  • Average: Credit score of 460 to 660
  • Good: Credit score of 661-734
  • Very Good: Credit score of 735-852
  • Excellent: Credit score of 853-1200

Within each grade, Equifax gauges how likely the user would be to default on their repayments, allowing potential lenders to determine the level risk associated with lending to them.

What Factors affect your Credit Score?

Credit scores are recalculated frequently by each reporting agency. Some of the most common factors that can affect your credit score are:

  • Your repayment history (paying bills and making loan or credit repayments)
  • The number of credit applications or enquiries you have made
  • Negative information, such as defaults, bankruptcies and court judgements
  • Personal details like your age and how long you’ve been at your current job and residential address
  • How far back your credit history goes (when you first applied for credit)

As we mentioned earlier, Australia’s Comprehensive Credit Reporting system means that your good behaviour will be judged alongside the bad, so you can improve your credit score simply by being more responsible with your credit accounts.

Examine your Credit Report

Before we get to how you can use your car loan to improve your credit score, it’s worth stepping back to properly examine your credit report. Inaccuracies on your credit report could be costing you valuable points on your credit score, so get those fixed up first before doing anything else.

Apply for a copy of your credit report from each of the three reporting agencies, then check for any errors or inaccuracies in the credit accounts you currently have in your name. Also check for any applications you didn’t make. You can apply with the agency in question to have mistakes corrected.

Also be on the lookout for opportunities to improve your credit, for example, reducing the credit limit on your credit cards.

How To Increase Your Credit Score

Now to the important bit. How to use your car loan to improve your credit score.

If you have a car loan, be sure to make all your repayments on time. If you are able, consider paying down or paying off your loan. Be sure to check for any fees that may apply before you do this.

If you want to apply for a car loan, you can use that car loan to improve your credit simply by being responsible. Don’t apply for more than you can afford to pay back, and always make your repayments on time.

Also be aware of your ability to get approved before you apply. If you apply and are denied because of your bad credit, your credit score will fall even further as a result.

Car Loan Options for Bad Credit Borrowers

If you’re looking to apply for a car loan with bad credit, there are various options open to you. These include:

Bad Credit Car Loan Specialists: These lenders specialise in providing car loans to borrowers with bad credit. Opting for a lender such as this can take the stress out of applying for a car loan with bad credit, but be aware the loans offered may come with higher interest and fees.

Dealer Finance: Dealers often try to wrap finance in with the cars they sell. They can provide finance to bad credit borrowers, but be aware of the costs involved, and be sure to compare your options before applying.

Traditional Lender Finance: Traditional lenders such as banks can offer bad credit offerings to borrowers with lower credit scores. These still come with strict lending criteria, so check the likelihood of your getting approved before you apply.

Guarantor Car Loans: Some lenders allow applicants to apply for a car loan with a guarantor. This person guarantees the loan, so if the borrower is unable to pay, the guarantor becomes liable. If your credit isn’t great, teaming up with a guarantor could allow you access to a good deal on a car loan.

Want to find out more about bad credit car loans? Contact Car Loan World today to find out your options as a bad credit borrower, so we can help find you your best fit.


  • Roland is the founder of Credit World Pty Ltd and a leading financial expert in Australia. He has extensive knowledge on car loans in Australia. Known as a car loan expert, Roland has been featured on TV and in various publications. He started in finance comparison in 2005. Now a 17 year industry veteran.