Obtaining an automobile loan is another option for rebuilding your credit, but it only helps you if need to get another vehicle. Otherwise again, you’re putting money into your bank’s account rather than in your own.
One suggestion from a mortgage banker says that if you need to get another vehicle (rather than just want a newer one) and you have a trade-in with a clear title, do the following:
Have the dealer write up the loan for the full purchase price, if you can afford to make the payment. Then you “sell” the automobile which has no lien to the dealer instead of using it as a “trade-in,” and the dealer will give you a check for the amount of that vehicle. Deposit it into your account and don’t spend it. Resist the urges that come from “Oh, but I need…” Once you receive your first statement from the automobile finance company, send in your regular payment AND also send in a separate check for “Principal only” which is the amount you received for your “trade-in.” This works if you’ve saved for a down payment, too. In this way, you’ll not only pay less interest over all, but you’ve just decreased your balance to credit limit ratio as well.
You can make similar moves as it relates to mortgages/refinances if you have the equity in your home but again, the critical point in this strategy is to not spend the money once you get it. Keep it in your bank for a month and earn the interest on it, and send it in as payment as soon as you get your first statement!!