Before applying for a car loan, it’s important to know where your credit stands. Credit is king, and just how much car you can afford will rely heavily on your credit score.
Your FICO Score
Most auto lenders will look at your FICO credit score to determine eligibility. Your FICO score is based on five factors:
- Payment history: 35 percent
- Amounts owed: 30 percent
- Length of credit history: 15 percent
- Credit mix: 10 percent
- New credit: 10 percent
Your FICO score can range anywhere from 300 to 850, with 300 being the low end and 850 being perfect. Lenders have specific requirements a potential car buyer must meet, including having a certain credit score, and income and residency requirements.
Easy Ways to Boost Your Credit Score
There are many ways you can boost your credit, but it won’t happen overnight. It takes time to build good credit if your credit is less than perfect. So, just how do you increase your credit over time? There are four main ways:
- Keeping up with your credit score and reports – Know where your credit stands by checking your score and reports as often as possible. You’re entitled to a free copy of your credit report every 12 months from each of the three credit bureaus: Experian, Equifax, and TransUnion. Make sure everything is correct, and dispute any inaccurate negative marks.
- Paying all bills on time – The most important thing you can do is pay all of your bills on time, every time. Your payment history is the single biggest determining factor of your credit score, so it's the most important thing to pay attention to if you're trying to improve your credit.
- Lowering the amounts you owe – A great way to boost your credit score is to lower your credit utilization ratio (your credit limits compared to the amounts you’re using). Carrying high credit card balances negatively impacts your credit score, but paying them down can help you improve it in short order. Make sure you’re paying as much as possible on your credit cards each month. Ideally, your credit utilization ratio should be 30 percent or lower.
- Taking out other types of credit – It may seem counterintuitive, but taking out more lines of credit can actually improve your credit score over time. This doesn’t mean you should apply for multiple credit cards all at once, though. Applying for too many lines of credit in a short period of time can lower your score from multiple hard inquiries and it can also be a red flag to lenders. However, you need to use credit responsibly in order to build credit. So, if you don't have a credit card, getting one can help you improve your credit score before applying for a car loan.
Considering an Auto Loan?
Taking out an auto loan is a great way to build credit. But when you’re dealing with bad credit, finding a subprime lender willing to work with you can be stressful. So, if you’re having trouble getting the car loan you need due to credit issues, let Auto Credit Express help.
We work with a nationwide network of dealers that have the lending resources available to help people with bad credit car loans. Take the first step today by simply filling out our free of cost, no-obligation auto loan request form.