9 Steps to Fix Your Credit Score by Buying a Car

blog Feb 11th, 2025

Turn Your Vehicle Purchase into a Credit Score Boost!

If you're a newcomer to Ontario or struggling with a low credit score, buying a car might seem out of reach. However, with the right approach, purchasing a car can be an effective way to improve your credit. In Ontario, your credit score plays a significant role in securing loans, getting better interest rates, and even finding rental housing. Here’s how buying a car can help you rebuild or fix your credit score.

1. Check Your Current Credit Score

Before taking any action, it’s important to understand where you stand. In Ontario, you can get a free credit report from major credit bureaus like Equifax Canada and TransUnion Canada. Many financial institutions, such as RBC and BMO, also offer free credit score access, as do services like Credit Karma.

Reviewing your credit score will help you determine the best steps to improve it.

2. Start Building Your Credit History

Newcomers to Canada often face the challenge of having little or no credit history. One way to address this is by taking out a car loan. Lenders report your loan payments to credit bureaus, and making timely payments will help establish a positive credit history. This can open doors for future loans, credit cards, and better financial opportunities.

3. Save for a Down Payment

Saving for a down payment is one of the best things you can do when buying a car. A larger down payment reduces the amount you need to finance, which may improve your chances of getting approved for a loan. Ideally, a down payment of at least 10-20% of the car’s price is recommended, but even a smaller amount can show lenders that you’re financially responsible.

4. Explore Financing Options

Ontario offers a variety of financing options, even for individuals with less-than-perfect credit. In addition to traditional banks, lenders like NewRoads Financial cater to individuals with lower credit scores. Some dealerships also offer in-house financing or work with specialized lenders who provide loans for those with credit challenges.

5. Choose an Affordable Car

The car you choose will impact both your loan approval and your ability to make payments on time. If your credit score is low, focus on purchasing a vehicle that fits within your budget. Used cars are typically more affordable than new ones and can be a smart way to get started. Special finance managers can help you find a vehicle that meets your needs. While it may not be your dream car, it's a step in the right direction.

6. Make Payments on Time

The most crucial factor in improving your credit score is making consistent, on-time payments. In Ontario, missing payments can significantly harm your credit. Set up automatic payments with your lender or use reminders to ensure you never miss a due date. As long as you stay on top of payments, your credit score will gradually improve.

7. Avoid Overusing Credit

While your car loan can help rebuild your credit, it’s important not to take on too much debt at once. Keep your credit utilization low by avoiding maxing out your credit cards. Ideally, keep your credit card balances under 30% of your total available credit. This helps maintain a good credit score while still benefiting from your car loan.

8. Monitor Your Credit Regularly

Once you’ve taken out your car loan, monitor your credit regularly to track your progress. In Ontario, free tools like Credit Karma and Equifax allow you to see how your credit score is improving. Keeping an eye on your credit ensures that your efforts to rebuild are paying off.

9. Stick to Your Loan and Build a Strong Credit History

Consistency is key. Once you’ve secured your car loan, commit to making timely payments and staying disciplined with your finances. Over time, the positive impact on your credit score will be significant. A solid credit history will make it easier to qualify for future loans with better terms and interest rates.

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