If you’re relying on a loan to buy your next vehicle, you may want to improve your credit score before you start shopping.
Credit score is normally a leading factor for lenders weighing your application, and if approved, it will also affect the terms of the loan offered.
In that light, a cared-for score could make the difference between a new set of wheels or no wheels at all, and potentially save you thousands of dollars on finance costs.
Here are six ways to get credit savvy and move your score higher.*
Clear up past-due amounts
Late payments and missed payments can have a significant impact on your credit score, so it makes sense to catch up as soon as possible. Late and missed payments are important to lenders because they can show a customer’s willingness to repay a loan.
Dispute any errors on your credit reports
Check your credit reports with the major reporting bureaus (Equifax, Experian and TransUnion) for possible errors and inaccuracies. Disputing and correcting any discrepancies may boost your score for little effort.
Pay bills on time
Consider setting up payment alerts, automatic payments and moving your due date to a more convenient time to stay current. Paying on time is important for all your bills, not just credit card and loan accounts, according to Experian.
Pay down debt and keep balances low
Keep your credit use ratio, which is how much credit debt you have compared to your overall limit, at no more than 30%, recommends the Consumer Financial Protection Bureau (CFPB). So if you have three credit cards with balances that equal $300 and your credit limit for all three cards equals $1,000, you’re at 30%. You should look to pay off your maxed-out cards and late payments first, as those will continue to harm your credit score over time.
Leave unused credit cards open
Even if you have credit cards you’re not using, leaving them open can have a couple of benefits. First, they will help your credit use ratio. Second, if you’ve had the accounts for a while, they’ll have a positive effect on your credit history. Length of time on the bureau is another measurement many lenders use to determine a customer’s creditworthiness.
Only apply for the credit you need
Applying for credit results in a hard inquiry on your credit report, and multiple inquiries in a short space of time can drag down your score. If you’re seeking credit from various sources at once, it may also suggest you’ve run into financial difficulty. When you’re seeking an auto loan, however, you do have the freedom to make multiple applications in a limited period – generally 14 to 45 days. In this situation, credit scoring companies will realize you’re shopping for the best deal and your applications will be viewed as a single inquiry.
Get pre-qualified with Drive®
One of the benefits of a product like Drive® is that we connect you with dealers who have signed up with us, but we also help you find vehicles in your price range that you want to buy. It just takes two minutes to get pre-qualified and it doesn’t affect your credit score. Having your financing secured up front can help grant you the peace of mind you need to enjoy your new ride.
*These statements are informational suggestions only and should not be construed as legal, accounting or professional advice, nor are they intended as a substitute for legal or professional guidance.
Drive® is not a credit counseling service and makes no representations about the responsible use of or the restoration of consumer credit.
