Your credit score is important because it determines how you're seen by lenders when you try to get financing for a car. While there isn’t always a quick solution to credit repair, there are steps you can take to get on the right track. Here's a look at why credit is important and 8 steps you can take to help fix yours.
Having a tarnished credit history can feel impossible to overcome. Even if your poor credit history was the result of something out of your control, a low credit score can negatively impact your ability to take on new credit when you need it.
While there isn’t always a quick solution to credit repair, there are steps you can take to get on the right track. Let's look at why credit is important and what you can do to fix yours.
Your credit score is important because it determines how you're seen by lenders when you try to get financing or credit cards. Credit scores run from 300 to 850, and the higher the number the better off you are. If your credit score is around 670 or below you're considered a bad credit borrower, and may need special help to take on a loan, whether for a home or an auto. Your credit score can influence things like your loan terms and your interest rates, so the better your credit score, the better off you typically are.
Most lenders use your FICO score to see where you stack up when it comes to taking on a car loan, so it's good to know where you stand. If you find your credit is lower than you anticipated, there are ways to repair your credit, and none of them actually require you to spend any extra cash - unless you're behind on your bills already.
1. Check your credit reports
We don’t just mean looking at your three-digit credit score; we mean pulling copies of your credit reports and looking through them. Combing through your three credit reports from Experian, TransUnion, and Equifax ensures that you know what’s causing your lower credit score and gives you the opportunity to fix mistakes that could be harming your credit. You can request copies of your credit reports for free, once a week, thanks to a law change that came as a result of the pandemic. Visit AnnualCreditReport.com for more information.
2. Identify your problem areas
Do you have a history of missed or late payments? Do you have accounts in collections? Are your credit reports riddled with errors creating a low credit score? Identifying the issues that are hurting your credit score is the first step in fixing them.
3. Wait some things out
Severe credit issues, such as a vehicle repossession, missed payments, or even a dismissed bankruptcy, can harm your credit score for years. If these marks are correct, then the only thing to do is give them time to fall off your reports. Over time, the impact of negative marks decreases as well.
4. Seek credit repair help if needed
If your poor credit score is the result of multiple and severe inaccuracies, or it seems too overwhelming to tackle the issues alone, a credit repair company may be something to look into. These companies don’t just “fix” your credit score because you paid them, but rather help you on the journey to credit repair.
5. Pay down what you comfortably can
This always sounds easier said than done, but if you have past-due accounts or high credit card balances creating a lower credit score, that’s a good place to start. Credit card balances that are 30% over their limit can harm your credit score, and accounts in collections hurt your credit and can impact your ability to take on new lines of credit. Collection agencies often allow payment plans, which could help you chip away at debt more comfortably, and paying a little more than your minimum payment on a credit card can help bring that balance down faster.
6. Keep old accounts open
In theory, it makes sense to close old accounts that you don’t use anymore, but your FICO credit score actually benefits from older accounts. The average length of your credit history matters, so the longer you’ve had accounts in good standing, regardless if you use them or not, the better off your credit score can be.
7. Consider a credit builder loan
As the name suggests, these loans are designed to give borrowers a chance to build a better credit score. Credit builder loans are typically small amounts that you borrow, then work to pay down over time – usually shorter loan terms of around 12 to 24 months. Once you pay off the loan, you get the money, so it’s like building up savings and improving your payment history at the same time.
8. Take on credit when you need it, sparingly
In some cases, a bad credit score is a result of avoiding new credit, but this isn’t always the best course of action to improve your credit score. To build a good credit score, one of the better ways to do that is by having a long history of timely payments since payment history holds the most weight in your credit score. However, taking on too much credit all at once can credit score, and then you have to manage multiple accounts. Take it slow and take on new credit only when you need it.
The benefits of repairing your credit are vast, but mainly you can count on more financial freedom when it comes to your credit and the opportunities afforded to you. This typically means better rates and terms on loans, credit cards, mortgages, and the like.
Some of the key benefits to having better credit ultimately result in:
When you have better credit there are fewer roadblocks in your way from a lender's perspective, which means you may gain the freedom to give yourself the wiggle room you're craving in your bad credit situation.
There are several ways to start the process of fixing your credit score fast, but ultimately changes won't happen right away. It typically takes at least a month before you will see any impact on your credit reports, and ultimately your credit score. Some ways you can attempt to fix your score fast include getting a secured credit card, becoming an authorized user on someone else's credit card, or taking out a credit builder loan. However, all of these things will take time to show up on your report and repair your credit.
Patience is key when you're repairing your credit. And changes aren't instant. When something positive happens to impact your credit for the better you still won't see that change for at least 30 days, depending on when your lender reports to the credit bureaus.
Credit accounts that go to collections, or debts that are unpaid can stay on your credit report and negatively impact it for up to 10 years, though most things drop off after seven years. This means that bad credit decisions can hang around and haunt your credit. Ultimately, the sooner you start to work on credit repair the less time you'll have bad credit.
Fixing your credit doesn't take any additional money, and the best thing you can do to repair your credit is to pay all your existing bills on time and in full. Your payment history makes the biggest impact on your credit score, accounting for 35% of your total score. This means if you're constantly late with payments, or only make partial payments, or pay only the minimum due on credit cards, you're payment history is likely suffering and bringing down your credit score.
Many borrowers are looking for ways to improve their credit scores so they can get vehicle financing or other loans. One way to help improve your credit in the long run is to take on a new loan, like a car loan, and make all your payments on time and in full.
Here at Auto Credit Express, we aim to assist bad credit borrowers in need of auto loans.
We’ve created a nationwide network of special finance dealerships that specialize in assisting with credit challenges. Don’t go it alone on your next car loan – complete our free auto loan request form and we’ll get right to work looking for a dealer in your local area that’s equipped to help with unique credit issues.
Senior Automotive Financing Editor
Meghan is expertly versed in automotive special financing and pricing analysis, having published hundreds of articles on Auto Credit Express and its sister sites, CarsDirect, and The Car Connection over the past decade. She began her career as a sports writer for the local newspaper in her hometown nearly 30 years ago, and has enjoyed writing ever since. Read more
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