How Your Credit Score Affects Your Auto Loans

credit score and auto loan

Buying a car is an important investment and a big decision. You depend on your vehicle to get you to work, school, and anywhere else you need to go. If you, like most people, can’t pay cash upfront for a reliable vehicle, you’ll have to take out an auto loan.

A major factor in determining whether an auto loan works for you is how much this financing will cost you. The financing terms you can get depend on your credit score. While your credit does not have to be perfect to obtain a loan, the lower your credit score, the higher the interest rates and fees you’ll pay.

Your first step should be to get accurate information about your credit score. If you know where your credit score is at, then it can give you an idea of whether or not you’ll qualify for an auto loan and what types of interest rates to expect.

What You Can Do About a Low Credit Score

poor credit score

While it is possible to be approved for a car loan with a low credit score, the best interest rates go to consumers with scores of 750 or above. With a score below 700, you can expect higher rates.

What if you pull your credit score and it’s low? Rather than resigning yourself to paying more for your car loan, you may want to explore your options.

When Your Score Suffers from Errors on Your Credit Reports

One reason for your low score may have nothing to do with anything you’ve done wrong. Errors on credit reports are more common than you might think. In fact, over 20% of consumers have one or more errors on their credit reports that can negatively affect their score.

The reason so many people end up with poor credit scores is that it’s easy for information to be mixed up when there are millions of consumers with credit reports. It’s easy to mistake information like names and Social Security numbers, especially if they’re similar.

Another reason incorrect data turns up in your file is identity theft. Someone may have purposely used your personal information to open credit lines and make purchases. Since identity thieves don’t pay back the accounts they fraudulently open, identity theft victims can end up with accounts that have been charged off or sent to collections.

check credit score

Either way, it is important to carefully check your credit reports for inaccuracies. If you identify erroneous information, you need to send a dispute letter to the credit bureau. Explain the mistake on your credit report and attach copies of supporting documentation. The Federal Trade Commission recommends keeping copies of what you send and using certified mail with return receipt to document your actions. The credit reporting agency must investigate the issue and send you written notice explaining its conclusions. If the credit bureau cannot verify the account, then they must remove it, which can help your credit score. While it is possible to repair your credit on your own, you may want to think about signing up for credit repair.

When Your Credit Score Really Is That Low

Sometimes, you really just have a low credit score. You may not have a long enough credit history, or you did make mistakes in the past. While you can’t go back and change the past, there are steps you can take to raise your score and be eligible for better auto loan terms.

There are several factors that go into calculating a credit score. As a general matter, reducing outstanding balances on revolving accounts can go a long way towards improving your score. Review your records and see whether there are some accounts you can pay off, or whether you can make some additional payments to drive the balances down. Making your payments on time can also do a lot to help you improve or build your credit.

Other Ways to Lower Costs of Your Auto Loan

In addition to raising your credit score before applying, there are some other ways to get a better interest rate on your auto loan. One is increasing your down payment. The bigger your down payment, the lower your monthly payments. Another is shopping around for the best loan possible. You do not have to finance your car through the dealership. Institutions such as credit unions may offer better rates.

Refinance

Maybe you need a car now and absolutely cannot wait to get one. If that’s the case, and you don’t get a good interest rate, you have the option of refinancing down the road. If you work on building your credit while paying on your loan, then you may be able to refinance for a better interest rate and save money on the loan as well as your monthly payments.  

Planning in Advance

Don’t wait until you’re at the dealership to start figuring out how you’ll finance a new car. Raising your credit score can help you get a better interest rate and if you give yourself enough time before buying one, you should be able to get good loan terms. CreditRepair.com can help you improve your credit  so that you can get a car. Contact us today for a free credit evaluation to see how we can help you.

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Sources

https://www.cnbc.com/2017/09/27/the-real-problem-with-credit-reports-is-the-astounding-number-of-errors-equifax-commentary.html

https://www.consumer.ftc.gov/articles/0151-disputing-errors-credit-reports

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