The bottom line is that good credit helps when you want to get a used car loan. It also helps you get a more competitive interest rate on your loan.
Use these 10 good credit tips to help you get the credit scores you need to make car financing easier.
There’s no need to pay for credit reports. You may request a free copy of each of your credit reports from the three primary credit reporting agencies (CRAs), TransUnion, Experian, and Equifax, each year.
To make the best use of your free reports, stagger them. You’ve just improved your chances of tracking credit changes on all three profiles.
After you get your credit reports, review them with care. Search for inaccuracies that may lower your credit scores, such as a current account that’s reporting as past-due 90 days.
A recent Federal Trade Commission (FTC) study found that one in five people has errors on their credit reports.
If you’re one of them, dispute the error in writing. Write the credit provider as well as the CRA now. Include receipts, such as cancelled checks or transaction confirmations if you sent an electronic payment.
Although you can enter a dispute on the CRA website, send your dispute by registered snail mail with a receipt requested. Allow at least 30 days for the credit reporting agency to investigate the dispute and correct the error.
Don’t pay bills late. A late payment damages your credit scores. What’s worse is that the late payment stays on your credit reports for years before it finally drops off.
If you miss a credit card or loan payment, fix the problem as soon as possible.
A single account reporting 60 days late has a bigger negative impact on your credit scores than a payment that’s just 30 days past due.
It seems like everyone is getting credit card offers in the mail these days. Don’t take out new credit cards, especially in the weeks or months before you plan to apply for a used car loan.
That’s because sending out a flurry of new credit applications over a short time period is a red flag to lenders. You’ll look like a higher credit risk.
Submitting credit applications causes hard inquiries on your credit reports. These inquiries can lower your credit score.
In addition, don’t use too much of the credit on your outstanding accounts. Ideally, use 30 percent or less of your total credit lines. If you go above 30 percent utilization, pay down your balances.
After you pay an account in full, leave the account open with a zero balance. Closing the account won’t raise your credit scores.
The decision to close a credit account can actually harm your credit. This action lowers the total amount of credit available to you.
The decision to close a seasoned account with a consistent payment history is a bad decision. If you ask the credit provider to close the account, it disappears from your credit reports and credit history. This also services the lower the average age of your accounts.
To keep your good credit behaviors in play, keep your accounts. An older account with a zero balance helps new lenders approve the used car loan you want.
It’s usually better to systematically pay down your debt than move it around but, if you’re finding it difficult to make payments as agreed, refinancing may make sense.
This decision is especially appealing if you can lock in lower interest rates. Although a refinanced auto loan or mortgage, or credit card consolidation loan, might not boost your credit scores, refinancing can help you manage your credit and stay on track.
A first-time buyer with no credit or bad credit faces a disadvantage when compared to consumers with longer, stronger credit profiles.
Don’t despair. Some lenders accept first-time buyers’ car loan applications.
Use the tips above to identify errors and inaccuracies on your credit reports. (Even if you assume you don’t have a credit history, take the time to check Experian, Equifax, and TransUnion credit reports in your name.)
Use an auto loan calculator to understand how much car you can afford. Consider how different interest rates and loan terms affect the price of your car.
One of the best ways to get approved for a competitive used car loan is to increase your available down payment. A higher down payment reduces the amount you must borrow and reduces your finance charges over the term of the loan.
If you have fair to bad credit scores, think ahead by adding a cosigner or co-applicant to your used car loan application. If your cosigner or co-applicant has good credit, this boosts your chance of approval.
Note: Bad to poor FICO credit scores are generally around 600 or less.
While it might be possible to get approved without a cosigner or co-applicant, doing so is likely to save you money.
If you’re a first-time buyer with no credit, the Consumer Financial Protection Bureau suggests getting a secured Visa and MasterCard, or being added to a family member’s credit card as an authorized user, to start your credit history.
Make payments on time, use 30 percent or less of your total available credit, and apply for credit you need to build good credit scores.
Good credit is important for more than getting a competitive used car loan. It’s a factor when you rent a house or apartment, or when you want new mobile service.
To build and improve your credit scores, pay bills on time, manage credit balances, watch your debt-income ratio, keep a “rainy day” or emergency fund, don’t max out existing credit accounts, and monitor your credit reports.
Consider applying for used car loan financing with Shabana Motors. It takes just a few minutes to apply and all credit types are welcome.