One of the most important numbers that lenders will look at when you apply for an auto loan is your credit score. This number is crucial because it lets your lender know how likely it is that you’ll be able to pay back your loan based on your financial history. The most direct way of getting a better auto loan is by improving your credit score, so it’s important that you understand which factors are used to determine your score.
Factors Used To Calculate Your Score
The main factors included in their calculations are:The first myth that many people mistakenly believe about their credit scores is that they have a single score. In reality, each of the three major American credit bureaus has their own specific formula for arriving at your credit score, so you actually have more than just one credit score. However, they all use the same general factors to calculate your score, so there won’t be much disparity between your three scores.
- How much you currently owe
- Your personal credit history
- Your available lines of credit
- Credit history length
- Percentage of credit you’re using
Getting the best auto loan means that you need to start paying close attention to all of these factors, because they can make all the difference when it comes to purchasing a car.
Suffering from a low credit score?
The most important thing you should be doing in order to raise your credit score is paying back all of your loans on time. While this is sound advice whenever this is possible, this isn’t in the reach of a lot of Americans. In such a situation, there still are ways you can improve your credit score even if you’re on shaky financial ground.
- Communicate with your lender and try to work out a new payment schedule on terms that are agreeable to you, because the worst thing you can possibly do is ignore your debt. The longer you continue to miss scheduled payments, the lower your credit score will dip, making it even harder to get a car loan.
- Keep in mind that every time your credit history is checked, a notation will appear in your credit report. This isn’t always a bad thing, but it does mean that you should try to limit the number of loans that you apply for, since a large number of these notations will lower your credit score.
- Stay as far away from high-interest debt as possible, especially credit cards that are offered to you by retailers. These credit cards will almost always come with a strong incentive like an immediate discount off of your current purchase, but the interest rates will kill you in the long run.
Getting the Best Auto Loan
Credit scores fall between a range of 350 (the lowest score) and 850 (the best). The higher your credit score, the more likely your lender is to give you a favorable car loan, which means a lower interest rate and other favorable terms for your loan. Your credit score can be the difference between being able to purchase a car or not, so start keeping an eye on your score today if you plan on taking out a car loan in the future!