When thinking about some of the major purchases we make in life (buying a house, paying for college), one that is truly close to your heart and a source of pride is buying a new car. Think about it… A vehicle is something that you use every day, and has become not only a luxury but a necessity. But the road to buying a car is often not easy. It takes money.
Cars can range from a few grand to over a few hundred thousands. And it all boils down to a few things. Whether or not we can afford it. Although there are those who can pay cash and drive away, most of us need to get a loan and that is where things get complicated. What happens if your credit history and scores are not that peachy? While your credit may be dismal and you have a history of spotty credit, a few late payments, and your FICO score is not robust, there are several steps you can take to help rebuild your poor credit so you can get into that perfect (or almost perfect) car.
- Get Real: Start by Taking an honest Look at your credit score
Although you may be dreaming about driving in your brand new car, you first must be realistic and find out what your credit score is. A credit score is the number lenders look at in order to access your credit risk. You can check your credit with the three most well known customer credit report agencies: Experian, Equinox, and TransUnion. Bad credit usually means more difficulty in getting an approval for your loan and higher interest rates.
Another important number is your FICO (Fair, Isaac and Co) score. Before the FICO scores, lenders would have to use personal judgement but now it is a science of collecting credit history, activity and use. The higher the score, the lower the interest rate. FICO scores are mainly between 300-850.
After taking a good look at your scores (which can be done at Washington Auto Credit) , it is time to clean up your report and work out any disputes, possible mistakes.
2. Look at Past Behavior and Credit History:
Remember the higher the risk you are, the less money you can borrow and the higher the interest rate.
Red Flags for lenders are repossessions, foreclosures, missing payments or sudden increase in credit applications which may indicate you need money.
3. Do not live in the past…Steps to Change your Poor Credit History
Although it may not happen over night, improving your credit can be possible with some steps.
- Pay On time: Always. Not doing so can hurt your credit score.
- Keep your balance low and watch your credit utilization. One of the most important factors agencies such as Experion use is your credit card utilization. This is when the amount of debt you have is compared to your credit limit and preferably should be kept low, preferably under 30%. High utilization may indicate a big spender who may later have trouble paying off the debt accumulated. In other words, be cautious and don’t max out your card. You may have a 10,000 dollar limit, but that doesn’t mean to put $9,000 of debt on it.
- Watch for multiple cards and multiple balances. If you have balances on many cards, you may want to consider paying off your balances and using one.
4. What to do if your Credit Score is really low.
The fight is never over till the Sales Person or lender says “no”. Until then, take steps to obtain a loan and get that car.
- Cash is king. If you never had a car loan or a spotty credit history, you may want to save and put a large down payment. This could make a difference and help your loan approval.
- Honesty is the best policy: On your form, be as honest as possible. Do not exaggerate your salary for example. All information is verified so it does not pay to lie.
- Consider buying Used. Although new cars have that new car smell and may have better warranties and services, remember a car depreciates as soon as it is driven off the lot. So an used car may be a good option to save money after it is cleared for any defeats or faults.
The final tip is to buy what you can afford in order to keep the price down. Yes, you may want that Ferrari, but your budget may be more Fiat. But remember to pay your payments on time, and clean up your credit and who knows…Maybe your second car will be your dream car.
At Washington Auto Credit we are masters at getting people financing on their next vehicle. If you have a low credit score, we may be able to help. Contact us today!