Before you storm the barricades of every car dealership within 100 miles and hunt down that perfect set of wheels, understand there is an element at work that requires immense attention to detail and that is credit. Your credit history is ultimately going to decide whether or not you are going to finance a new car. Unfortunately, credit expands into several different facets.
This is dependent on what kind of score you get, whether it’s VantageScore or FICO, both systems now use nearly the same range. A score near 300 is considered very low and might not qualify for a loan, especially one with low-interest rates. A score of around 720 or more would net better odds of getting a loan with low interest rates.
When you apply for a loan the lender is going to pull your credit score from one of the three big bureaus, Experian, Equifax and TransUnion. Each bureau pulls the same or similar information, but focus their scores on special circumstances. For instance, TransUnion is more focused towards employment. Understand how each of these works to better understand where your score is coming from.
Remember your credit score is calculated using either FICO or VantageScore software and while they are similar it’s important to understand the fundamental differences between those scores. Bear in mind that there are different kinds of FICO scores as well, for instance, there is one that determines your eligibility for an auto loan, called an Auto FICO.
If you do end up with a low credit score, there are several ways you can raise it to an optimal level. Stay on top of your bills, keep your accounts active, paid in full and on time. Follow these basic steps, along with some other important practices and see your score improve.
You’re allowed one free credit report from each bureau, once a year. Stagger the reports at the end of each fiscal quarter so you can have a more consistent evaluation of your credit report and be able to spot inconsistencies or fraudulent behavior before it’s too late. If you find either of those, you’ll be able to contest them through a dispute process.
Arming yourself with this knowledge will help you get the best deal possible on your new (or used) car if you plan to finance. These are also practical to keep in mind for how to manage your credit in general, and not only in the case of applying for a car loan.
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