Do Title Loans Improve Your Credit Score?

A car title loan might be just the ticket when you need to get your hands on some quick cash. Even better, you can usually get a car title loan regardless of your credit history. You just need to show a steady income and a car with some value in it. That’s right, in most cases your credit score won’t matter one bit. On the other hand, though, this point likely raises the question: do title loans improve your credit score?

How Title Loans Work

In exchange for a short-term loan, title lenders accept the title to a vehicle as collateral. This could be a car, truck, motorcycle or even an RV. All you need to do is verify your identity, provide documentation confirming where you live and demonstrate that your income gives you the ability to repay the loan. You’ll also need to help the lender verify the value of the car and provide title documentation for the vehicle. In situations in which you own the vehicle with another individual, that person will need to provide similar data.  You must also bring the automobile to the loan office or provide photographs with which a lender can determine the overall condition of the car. The lender will consider the information you provide and check the value of the car to decide whether to fund the loan — and for how much. You can get an idea of the value of your car before applying for a loan by using a title loan calculator.

Credit Checks Aren’t Required

Because you’re pledging the title to your car as collateral, lenders usually don’t run credit checks. This can be a true benefit for people who have had credit problems in the past but are now better situated. What’s more, because credit checks aren’t run, your credit score will often not be affected by applying for a title loan. This is in direct contrast to banks, credit unions and financing companies, which routinely run credit checks as part of the decision-making process. Many people are surprised to learn that a lender running a credit check can lower your credit score. This is because one of the factors that go into its calculation is whether you’ve applied for new credit recently. On the other hand, title lenders generally don’t report activity to credit monitoring agencies. So, while applying for a title loan won’t hurt your credit, paying one off on time, and according to the terms of the agreement, won’t really benefit your credit score either. Thus, when running a search for “car title loans near me” you can rest assured your credit score wouldn’t suffer when you apply for the financing. However, failing to meet the obligation and having the pledged vehicle repossessed could get reported to the bureaus. This will then be reflected in your credit score. And you’ll lose your car besides.

Title Loans and Credit Scores

One of the main positives of car title loans is they can be had regardless of an individual’s credit history. Having good credit, bad credit or even no credit is typically irrelevant to the process. All you need is a car with some value in it to get a title loan. That’s the upside. But, if you’re looking at getting a title loan with the hope of improving your credit score, you’ll be better off going a different route. By and large, a car title loan has no effect on your credit score whatsoever.  Again, this is assuming you pay it off, rather than defaulting and having your car taken away. Of course, it can be reasonably argued that the title loan had no effect on your credit score, even in that regard. Rather than the loan itself, failing to pay is what results in the activity.
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