Enjoy auto loan approval without a hassle by repairing and building your credit before you apply.
Auto loans don’t usually cause as many problems for consumers as other types of debt.
Fact: According to TransUnion statistics, less than 1 in 100 auto loans lapses into delinquency.
Still that doesn’t mean that you can be lax when it comes to getting the best interest rates and terms on loans for a new set of wheels. In fact, it’s in your best interest to get qualify for the lowest rates possible and the terms you want that you know will work for your budget.
With that in mind, we’ve put together the step-by-step instructions for ensuring the best credit score possible before you go to apply for your new loan. If you have questions or need help, we can connect you with the services you need for assistance. Call us or complete the form to the right to tell us how we can help.
Step 1: Review your credit reports
If you haven’t done so in the past twelve months, you can download your credit reports for free through annualcreditreport.com. This platform lets you get all three reports (one from each credit bureau) free of charge with no strings attached. (If you’ve done this in the past 12 months already, it won’t be free.)
Once you have the reports, review them to see what they say. You really want to focus on any negative items that decrease your credit score. Remember, the lower your credit score is, the harder it will be to qualify for larger loans at the lowest interest rate possible. Take note of any negative items that may be wrong so you have a list ready for Step 2.
How much more would you pay in total interest on a 5-year $25,000 auto loan with a 620 credit score versus a 720 over the life of the loan?
a) $100-$200 more
b) $250-$350 more
c) $500-$600 more
d) $900-$1,000 more
Tip: It costs roughly $940 more in added interest charges; this was calculated using rates set in December 2014.
d) $900-$1,000 more
Once you’ve reviewed your reports and see how many negative items are there, you have some decisions to make.
Step 2: Decide how soon you can buy
More negative items usually means a lower credit score, so you need to decide what you what to do and how much time you really need before you buy.
Ask yourself these questions:
- Are there negative items in your credit report that are mistaken or incorrect? If so, could they be removed through credit repair?
- How long will it take for all of the negative items that are correct to be erased? Negative items only stay on your report for a set period of time, so can you wait for items to be removed naturally or take steps to offset old negative items?
- Are your credit cards at or near their maximum limits? The amount of revolving credit you are using matters in your credit score. Ideally, your credit cards balances should be at about 20% of your limit to maximize your credit score.
All of this will determine how soon you can buy. If you answered yes to the first question, you go to Step 3. Otherwise, you can skip it and go straight to Step 4.
Step 3: Repair your credit
If you have negative items that you believe are incorrect or unverifiable, you may be able to have them removed by going through the credit repair process. This can take anywhere from one to six months, depending on the number and nature of the errors you find.
Of course, you can correct the mistakes on your own or you can use a credit repair service to help you do the work. Which method you choose is really up to you, although if you have a large number of disputes to make or some of the disputes are complicated, you may want to take the help.
In any case, you can actually do Step 4 at the same time you’re correcting the mistakes in this step. And if you need credit repair, you can use this as a measure of how much time you have to execute what you need to do in the next step, too.
Step 4: Maximize your credit score
Having negative items that are mistakes removed with credit repair is one thing, but negative items may not always be mistakes. For negative information that can be verified, you either have to wait for the penalty to expire or you have to take steps to offset the damage it may be causing.
Fact: Most negative information can only remain on file for 7 years.
So if you have negative items that are getting removed in the next few months because the penalty is ending, then you should decide if you can hold off on the loan until the items are removed.
There are also other credit score indicators in your profile that are important to use for your strategy, too. If you’ve had a large number of inquiries in the past 6 months, you may choose wait until those inquiries aren’t shown anymore before you apply, since too many new credit applications can drive down your credit score.
At the same time, you need to be taking steps to minimize your credit card debt load. Credit utilization ratio is a key factor in your credit score calculation. Lenders tend to like you best when you’re only using about 20% of your available credit line. So take steps to pay off your debt as much as possible before you head to the dealership.