It helps to have good credit when you apply for an auto loan.
It helps to have good credit when you apply for an auto loan. That’s because good credit may make it easier to qualify for a loan or get a better interest rate. Practicing good credit habits can help you achieve the score you need. Here are 7 good credit habits to make auto financing easier.
1. Get Copies of Your Credit Report
You’re entitled to a free copy of your credit report for each of the three major credit reporting bureaus, including TransUnion, every year.
You’re entitled to a free copy of your credit report for each of the three major credit reporting bureaus, including TransUnion, every year. One way to make good use of these free reports is to get one copy from a different bureau every few months. That way, you have a greater chance of tracking credit changes common to all three reports.
2. Find and Fix Inaccuracies
When you get your free credit reports, go over them with a fine-toothed comb. Look for any inaccuracies that might lower your credit score, such as current accounts being reported as past due. If you find inaccuracies, dispute them in writing to both the credit provider and the credit reporting bureau as soon as possible and include return receipts so you have records of everything.
3. Pay Your Bills on Time
One of the worst things you can do in terms of managing your credit health is to pay your bills late. When late payments show up on your credit report, they’ll likely harm your credit. It can be years before listed late payments drop off your credit report.
4. Quickly Bring Past-Due Accounts Current
If you do get behind on payments for a loan or a credit card account, remedy the problem as quickly as possible. An account that’s 60 days past due, for example, may have a larger negative effect on your credit score than one that’s only 30 days past due.
5. Don’t Take Out Too Much Credit
Taking out many credit cards — especially in the weeks and months leading up to applying for a car loan — may not be a good idea.
Taking out many credit cards — especially in the weeks and months leading up to applying for a car loan — may not be a good idea. Applying for a lot of credit in a short period of time can flag you as a higher credit risk. All those applications cause hard inquiries to be placed on your credit file, which typically have the effect of lowering your credit score.
6. Don’t Close Accounts
Closing a credit card after you’ve paid it off usually does nothing to improve your credit score. In fact, it could hurt you because it will lower the amount of credit you have available. If you close a long-standing account with good payment history, then that card will disappear from your credit history, also lowering your average account age. That’s another key factor for most credit scores, so it’s important to keep good past credit behavior in play. Keep older accounts open to put yourself in the best position you can to get a good car loan interest rate.
7. Refinance If Necessary
Though it’s probably best to pay down debt rather than just moving it around, a refinance can make sense if you’re having trouble making your payments. This is especially true if you can get lower interest rates. A refinanced auto loan or mortgage, or consolidating credit cards, may not directly boost your score, but it can make it easier for you to manage your credit.