If you’re trying to improve your credit score, there are a number of things that can help. Some of them are harder to do than others, like paying off debt and avoiding late payments. These are tough if you’re in a tight financial situation or have an unexpected bill that comes up. But you can repair your credit score by obtaining a car loan and keeping up with the payments as scheduled.

Win-Win Situation

Not only does a car loan help to repair your credit score, but it also gives you something that you need to get around. Unlike taking out a loan to buy an RV or boat, neither of which will necessarily help you get to and from work or school, a car gives you freedom and flexibility. Many of the newer car models available also have better safety features than older cars, so you can help protect yourself and your passengers when you buy a better car.

Good Debt

Taking out a loan might seem counterintuitive to rebuilding your credit, but it helps to understand the difference between good debt and bad debt. Good debt includes loans that have low interest rates, such as mortgage and auto loans, while bad debt includes credit cards and other loans that have high interest rates. When you miss a payment on a high interest loan, you’ll end up spending a lot of extra money in interest, which negatively affects your score and causes you to owe more money. This puts people in bad financial situations because they can never get ahead of their debt.

But with good debt, you can maintain the payments without worrying about massive interest rates or other penalties. As a result, staying current on your car loan is easier and allows you repair your credit.

A Mix of Credit

It’s also beneficial to have a mix of credit on your report. If you only have credit cards open in your name, your credit score won’t be as high as someone who has a mortgage loan, a car loan, and a credit card or two.

Know What to Expect

Obviously, the interest rate on your car loan will depend on your credit, as well as the length of the term and any down payment that you have available. But when you go in to buy a car, know your options and what to expect so you don’t end up in a bad situation. You can finance through the automotive dealership, but you certainly don’t have to. Many people with bad credit feel like dealer financing is the only option, but many banks and other financial institutions give loans to those who are working to improve their credit.

You can do some research online before you start shopping to get an idea of what your interest rate might be, helping you to predict the approximate monthly payment for the car of your dreams.

When you’re shopping for a vehicle, be sure to select one that you can afford so you can continue to improve your credit score by keeping up with the payments.

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