Knowing Your Credit: Car Loan Tips

Your credit impacts a car loan as much as any other part of your application. Before you apply for a car loan, you should not only know your credit score but understand the factors behind the score. It is only through having a solid understanding of your credit, particularly if it is less than perfect, that you can evaluate whether your lender is pricing your options correctly.

Monitoring Your Credit

The first step to evaluating your car loan in terms of your credit score is actually knowing your credit score. In the months or year leading up to taking out a large loan, you should be monitoring your score. This will allow you to work to improve the score and make any complaints if necessary. Sign up for a monitoring service directly with one of the credit bureaus or elect a third party service. The third party services will give you a more complete picture, but the direct bureau reports tend to be less expensive. Checking your own score, contrary to popular opinion, will not significantly drop your credit.

Understanding a Credit Score

Your score is an overall measure of how well you have performed with the debts you have taken. It is a number used to express your ability to come through on your dent promises. A score over 700 is fine, but a score over 730 is preferred. If your score is lower than 700, you will fall into the medium to high risk category. The lower you are beneath that 700 threshold, the harder it will be for you to get a good loan. Once you understand the factors in your credit history that set this score, you can better control your habits to increase your score.

Reviewing a Credit History

Your credit history is the actual events that lead up to your final credit score. A credit history shows all open debts and credit lines, their balances and all closed debts and lines, including if you closed the debt satisfactorily. You can raise your score a small amount just by keeping the right amount of debts and lowering your balances. It is okay to have more than one credit card, for example, but having too many presents a risk to the lender. The lender sees you may spend all of the money at once, dropping deep into debt. Keeping your balance low and limits high on a few cards is a better method to follow.

Credit and Car Loans

Your car lender will use not just your score but also your credit history as a measure to set your interest rate with. In terms of your score, aim to fall in the low risk zone. With your history, show responsible management of installment debts in particular. Car loans are installment loans, so your performance on other similar loans will affect these rates more. If you have never taken an installment loan, expect slightly higher fees despite a good credit score. If you know you have an error on your credit history, come prepared with an explanation of why the problem occurred.