A common struggle among many people and driving new cars is their credit rating. If you fall into the category of low credit scores, here are some tips you can use to improve your credit score before applying for a car loan.
Pay off the revolving debt
Besides your payment history, one of the most important factors in determining your credit score is your credit utilization rate. This ratio is calculated by determining the total amount of revolving credit you are using versus the total amount of revolving credit you have. Revolving credit includes your accounts such as credit cards, bank cards, and lines of credit. With high credit utilization rates, you can dramatically improve your credit score by paying off your revolving debt to a ratio of at least 30% or less.
Dispute inaccurate information
Before applying for a car loan, it is a good idea to obtain a copy of a credit report from the three major bureaus. Take a look and examine each account to make sure it is reporting accurately. Any inaccuracies you find should be disputed with the credit bureaus. It is not uncommon for a person to have a negative account on their credit report that is not theirs. By disputing it with the credit bureaus, you may be able to get it removed, which will naturally improve your credit score.
Build your credit report
Improving your credit score will depend heavily on your specific credit profile. If you are just starting out and don’t have a lot of accounts on your credit report, you can benefit from opening new accounts. For example, if you don’t have a revolving account, you might want to consider opening a major credit card account. While it may have a slightly negative impact due to a thorough investigation of your credit report, having a new account can actually improve your score by increasing the amount of available credit you have in your credit mix. credit.
Pay overdue balances
If you have certain accounts that have overdue balances, it can negatively affect your credit score. By catching up with these overdue balances, you may be able to improve your credit score. Plus, they’ll want to see that you’ve paid off the balance before giving you a car loan.
Pay off new loan balances
If you have recently had a automatic refinancing with withdrawal, the amount you owe on the loan is likely to be very close to the original loan amount. Having loan balances that are relatively close to the original loan amount can have a negative impact on your credit score. When you pay off your loan balances, you can actually see that your credit score can improve.
According to Lantern by SoFi, “different lenders require different credit scores.” However, taking the time to improve your credit score before applying for an auto loan can increase your chances of getting approved with a great interest rate.