How Auto Loans Help Build Your Canadian Credit Score

Why Auto Loans Matter for Credit

In Canada, your credit score is calculated based on payment history, credit utilization, length of credit history, types of credit, and recent inquiries. An installment loan like an auto loan adds a valuable credit type to your profile and — most importantly — creates a track record of on-time payments.

Payment History Is King

Payment history accounts for approximately 35% of your credit score. Every on-time monthly car payment is reported to Equifax and TransUnion, gradually building a positive history. Even one late payment can set you back, so set up automatic payments or calendar reminders.

Installment vs. Revolving Credit

Credit cards are revolving credit — lenders like to see you can manage fixed-payment installment loans too. An auto loan diversifies your credit mix, which accounts for about 10% of your score.

Best Practices for Newcomers

If you are new to Canada, an auto loan may be your first major credit account. Start with an affordable vehicle and reliable payment schedule. After 12-24 months of on-time payments, you will likely qualify for better rates on your next vehicle or a credit card.

Rebuilding After Bankruptcy

Post-bankruptcy, an auto loan is often recommended by credit counselors as a rebuilding tool. Subprime auto lenders report to credit bureaus, so consistent payments demonstrate financial responsibility to future lenders.

Explore our no credit programs or newcomer financing to get started.