Getting a new (or used) car is exciting—it’s just everything else that comes with it that can be a drag. Financing a car goes much more smoothly if you know your credit score and can prepare to deal with the car salesman.
If you’ve got poor credit, no matter how much you argue, any financial institution will only give you subpar interest rates. But if you have good or excellent credit, you have more room to negotiate.
So before you even start thinking about the kind of car you want, what color it will be, and if you really trust the self-parallel parking deal, you’ll want to take a look at your credit and see where you stand.
Give yourself a few months of credit tracking before you step foot on a lot. That may seem like a lot of time when you’re eager to upgrade, but here’s why it’s important.
You can save A LOT on financing when you know your score
The car loan interest rate you get is entirely based on your credit score. When you have a sore above 750 (considered an excellent score), you can probably qualify for the best rates. Having a good loan rate mean paying a lot less.
Therefore, even if you don’t have perfect credit, knowing your score is an important step in negotiating your car loan.
Tracking your credit can help correct errors from your report
If you track your credit, you can find potential errors that may be hurting your score. If there’s anything questionable, like paid off accounts that are still marked as unpaid, your first step is to contact the three major credit bureaus.
Luckily, TransUnion makes it easy to dispute any incorrect information on your report. You can easily file your dispute online, and you’ll typically hear back within 30 days.
Here are some Dos and Don’ts before a big credit pull
Before a big pull on your credit, such as taking out a car loan, you’ll want to make sure your credit is squeaky clean. Here’s a few tips to help you make sure it is.
Don’t apply for other credit
If multiple hard pulls are done on your credit in a short amount of time, this will drop your score.
If you’re suddenly in the market for multiple lines of credit, you’re considered to be a greater risk. Suddenly it’s more likely that you’ll miss payments on one or more of these loans.
This is why rate shopping is important, especially when it comes to auto loans. Luckily, it’s as easy as few clicks on your computer. Knowing what rate you qualify for can help you feel a lot braver when it comes time to face the car salesman who will try to stick you with an unbelievably high rate.
Don’t co-sign a loan
Co-signing a loan isn’t a bad thing overall. It feels good to help a friend or family member in need, but there are serious dangers to co-signing.
Namely, if the person you co-sign for doesn’t make their payments, you’re saddled with them. And if you can’t make the payments either, that debt gets sent to collections and there’s a big red mark on your credit report.
Don’t close credit card accounts
Closing credit cards can hurt your debt-to-credit utilization ratio. This is the debt you have incurred on your credit cards divided by the credit limit on all your accounts. This ratio makes up 20 percent of your credit score.
If you close your credit card accounts, your credit will be affected, and not in a good way. By all means, stop using the cards themselves, but don’t close the accounts. That way, your credit utilization ratio won’t be affected and you won’t have any balances on your cards.
How to track your credit
Above, I talk about why tracking your credit is important, but now let’s talk about how exactly to do that.
Once a year you can get your free credit report from the three major bureaus: TransUnion, Experian, and Equifax.
There are also a number of other ways to track your credit, but one you should seriously consider is credit monitoring. TransUnion offers a particularly good credit monitoring service.
For $9.95 a month you could have total peace of mind when it comes to your credit score and your identity. You’ll have unlimited access to your TransUnion report (a lot better than most services which only update every 30 days).
Related: Our TransUnion Credit Monitoring Review
If you start tracking your credit for just a few months while paying down debt, you’ll see the difference. Then you can start thinking about the best car financing options to fund your dream car.
Choosing the perfect car takes time, and so does understanding your credit score. Before applying for an auto loan, make sure your credit is a good as you can get it.
Take a couple months before you make your purchase and start tracking your score. Correct any errors or charged off accounts so your report is as clean as possible.
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