How Will My Credit Score Affect My Ability to Buy a Car?
Your credit score comes from one of three reporting agencies (Equifax, Experian or TransUnion), and ranges from 300 to 850. Your score determines not only your interest rate but also whether or not you’re even eligible for a loan. Typically, scores over 720 are eligible for good interest rates, while scores under 630 may have a tough time getting a loan at all.
Do you know what your credit score is? If it’s not the best, do you know what you can do to give yourself the best chance of walking out of the dealership with a great deal?
Know Your Credit Score Before Walking into the Dealership
The most empowering thing you can do before buying your next car is purchasing a credit report. This report will not only tell you your credit score but will also list actions you’ve taken that have affected that score. You should be aware that your credit score varies slightly among the three different reporting agencies, so the number you’re looking at may not be exactly what the dealer sees.
Fixing Your Credit
As soon as you obtain your credit report, examine it for wrong information and contact the reporting agency to fix it. Then, if possible, boost your credit by working on the five areas that reporting agencies look at. These areas are:
- Payment history (35%)
- Amounts owed (30%)
- Length of history (15%)
- New credit (10%)
- Types of credit (10%)
Some ideas for fixing your credit: Stop making late payments, pay back as much debt as you can afford, avoid closing old cards and don’t open up new credit. Remember that just a few points added to your score can help you get into a lender’s next tier, potentially saving you thousands of dollars.
Research Your Options
Getting an auto loan from the dealer may be convenient, but it’s not your only option. Once you know your credit score, find out what type of loans you’d be approved for by contacting your bank as well as online lenders. You don’t have to take these loans, but just being approved can give you leverage at the dealership.
At the Dealership
When you arrive at the dealership, you should have your credit score and lending offers in hand. Do not offer this information before the dealer checks your credit; you just want it in case you need it for leverage. If the dealer tells you that your score is higher than you thought or offers you a better deal than the one you got, you’re good to go. However, if the dealer offers you a worse deal, you can use your documentation to negotiate a lower interest rate or go with a different lender.
One final thing to consider is that some dealers might offer zero percent financing or cash back. If you’re offered this choice, consider taking the cash back and going with a different lender that has a low-interest rate.
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