Your Credit Report & Car Loan

You now know some important things to look out for when you apply for the car loan you want, but there's more to it than that. You need to find out your credit score before applying for a loan. But won't checking my credit history hurt my credit score? You hear many people claim this, but it just isn't true. There are numerous online resources allowing you to view your credit profile, and some of them won't cost you a dime. By knowing your credit score before searching for your next car, you know what to expect and avoid the risk being swindled.

Lenders use your FICO score to evaluate how much of a risk it may be to lend you money. Your score is going to influence a large portion of your car loan. FICO scores are based on several factors: your payment history, credit use, credit history (which is the length of time you've worked to establish your credit), and the types of credit you've acquired. A score over 680 qualifies you as a Prime borrowing candidate, with anything lower being Subprime. It's much harder to obtain a loan with a low rating, and your interest rates will certainly be higher. The higher your credit score is, the better your car loan deal will be.

Boosting Your Credit Score

Let's say you're a Subprime borrower or you've filed for bankruptcy. Despite this you may still be able to obtain a loan, but it's going to cost you much more in the long run. Lenders don't feel that they can fully trust you to pay them back in full by the proper time, so they increase the interest rate substantially to protect their investment. It might be in your best interest to work on your credit score before applying for an auto loan. You're credit score isn't fixed; over time you can raise it by using credit responsibly. Make your payments on time and use credit only when necessary and you'll certainly see your credit score start climbing. Additionally, an accountant or lawyer can get you into a debt settlement program if you're in too far over your head. The importance of your credit score can't be understated. Don't be afraid to look for help if you're having trouble repairing it on your own.

Check out our glossary of car loan terms.