Can Secured Cards Help Get Car Loan Approval?
Secured credit cards require an upfront deposit and help build your credit profile. Responsible usage can improve your credit scores over time. But can getting a secured card help with approval odds for larger loans like auto financing?
How Secured Cards Build Credit
Secured cards act like regular credit cards but require a refundable security deposit that becomes your credit limit. They help consumers with poor or limited credit history get approved for an open revolving credit account.
Making on-time payments gets reported to Equifax, Experian, and TransUnion. This establishes positive payment history to help improve your credit scores.
After consistently demonstrating responsible usage for around 12 months, credit scores typically start to recover into the fair to good ranges.
Credit Profile Factors for Auto Loans
When you apply for an auto loan, lenders evaluate these key aspects of your credit profile:
- Payment history – On-time payments help while late payments or collections hurt.
- Credit history length – Extensive history lowers risk versus limited history.
- Credit mix – Experience with different types of credit like revolving and installment accounts.
- New credit – Too many new recently opened accounts can be seen negatively.
- Credit inquiries – Numerous applications in a short period indicate credit seeking.
- Outstanding debt – Lower debt relative to limits and income improves approval odds.
How Secured Cards Help Credit Factors
A secured card can positively influence the credit profile factors considered for auto loan approval:
- Payment history – Making monthly payments on time helps establish positive history.
- Credit mix – Adds an open revolving account which diversifies credit types.
- Credit history length – Extends your overall history as the account ages over time.
- New credit – Shows accounts being opened responsibly and managed carefully.
- Credit inquiries – Just one secured card application minimizes hard inquiries.
- Outstanding debt – Maintain low balances compared to limit to keep utilization low.
The biggest impact comes from strengthening your on-time payment track record. But secured cards help in many areas.
Credit Score Impacts
The most significant factor secured cards improve are your credit scores. Relevant scoring models for auto loans include:
- FICO 8 – Most commonly used model by auto lenders. Improved by secured cards but may take 6+ months.
- FICO Auto Score versions – Factors in payment history mix related to auto loans. Direct auto loan experience helps most.
- VantageScore – Also used by some lenders. Secured cards can provide a quicker boost within just 2-3 months.
While secured cards help overall FICO 8 scores over time, the impact on auto-specific scores depends on your existing credit profile mix. Payments on any current auto loans or leases boost auto-specific scores more directly.
Typical Credit Profile When Applying
Here is an example credit profile that could result from using a secured card responsibly for 12 months before applying for an auto loan:
- 7 open accounts reported
- Combined 12 months of positive payment history
- Revolving and installment account mix
- 670 FICO 8 score
- 650 auto-specific FICO score
- 15% credit utilization
- 12 month average account age
- Only 1 credit inquiry last 6 months
At this point, approval chances for an auto loan are decent despite limited history.
Improving Approval Odds
Using a secured card responsibly helps improve credit factors relevant to auto loans. Additional tips to further boost your approval chances include:
- Pay all current debt obligations on time going forward
- Limit new credit applications in the 6 months preceding your auto loan application
- Pay down balances on existing revolving accounts
- Maintain employment and income stability
- Save up for a 20% down payment rather than financing 100%
- Apply together with a well-qualified co-signer if possible
- Shop with lenders specifically offering auto loans to those reestablishing credit
Timeframe to See Impact
It takes time for the benefits of secured card usage to impact approval odds on major loans:
- 1-6 months – Minor boost to overall credit scores
- 6-12 months – FICO 8 score improves showing positive history
- 12-18 months – Credit mix and history length extended
- 18-24 months – Much improved approval odds as all factors strengthen
Be patient and don’t expect instantly higher approval chances. Consistently using your secured card properly for 1-2 years provides the maximum benefit.
Considering a Secured Auto Loan
Another option to get approved for financing while rebuilding credit is to apply for a secured auto loan. These require a down payment deposit to offset lending risk.
Benefits of secured auto loans:
- Can get approved with poor/fair credit scores as low as 550
- Opportunity to rebuild credit by making payments on time
- Deposit reduces interest rates compared to unsecured loan options
- Usually only a 15-20% down payment deposit needed
Check secured auto lending requirements since they are often more flexible than regular poor credit auto loans.
- Responsibly using secured cards helps rebuild credit relevant to auto loan approvals.
- The biggest boost comes from establishing positive payment history and improving credit scores.
- It takes around 12+ months of diligent usage to see a meaningful impact on approval odds.
- Also focus on optimizing all approval factors, not just your scores.
- Secured auto loans are an alternative if you need financing more urgently before credit fully recovers.
Over time, secured cards provide an important benefit by gradually improving your credit profile for major loans like auto financing approval. But be patient – it can take a year or more before you see the full impact.