If you are considering the purchase of a new car, chances are you have thought about how you are going to pay for that vehicle.
Many Americans choose to purchase a car through financing, and your credit score has a direct correlation as to how much you will pay for your auto loan.
Before you apply for multiple auto loans, it’s important to know your credit score.
There is no other factor that has as large as an impact to your APR as your credit score.
FICO Credit Score
There are many various credit scoring models, although the most common one is the FICO credit score. A person’s FICO score is based on 5 total factors:
Payment history: 35%
Credit utilization: 30%
Credit history: 15%
Credit mix: 10%
New credit: 10%
Credit Score and Auto Loans
If you are beginning your search for your next car, there are certain actions you can take to ensure that your credit score won’t prevent you from getting approved for an auto loan.
- Check your credit report for errors – Thousands of Americans each day find errors on their credit reports. An error in your report can result in a drop of 100 points or more in some cases. If you see an error in your credit report, file a dispute with the credit bureau right away.
- Pay on time -The largest contributing factor to your credit score is Payment History, accounting for 35% of your total credit score. Be sure to pay all of your bills on time and to repay any past-due or delinquent bills.
- Utilize less – Credit utilization, or how much of your available line of credit you use, is an important aspect of your credit score. Try to use less than 30% of your available line of credit at any time.
- Stop applying – Although having different types of credit available to you is actually good for your score, too many inquiries on your credit report can scare off lenders. This is because applying for a large number of loans or credit cards gives the impression that you are in a cash bind.
All in all, taking the time to prepare your credit and credit score for an auto loan can save you thousands in interest expense. If you are looking to buy a new car but have less than perfect credit, CrediReady can help.
Our nationwide network of trusted dealers and verified lenders work with buyers in all credit situations. Take a moment to fill out our free no-obligation loan inquiry form and start shopping for your dream car today!