What Credit Score is Needed to Buy a Car?
One of the top mistakes people make when buying a new car, or refinancing an auto loan, is not checking their credit score before they go car shopping. In fact, most people wait until they find the car they want; then they have the dealer check their credit.
Don’t be like most people.
Shopping this way puts you in a bad position, because it allows car dealership and financing companies to perhaps charge you a higher rate than you deserve. When buying a car, one of the first things you should do is check your credit report and score. If you already know what your score is, you’ll know what credit grade or financing tier you belong in and what interest rate you should be offered. Checking in advance also allows you to fix any mistakes on your credit report before you hit the showroom. You can then be confident of being approved for your financing and can concentrate on getting the best deal on your vehicle purchase.
Credit Report Basics
There are three major credit bureaus: Experian, Equifax and TransUnion. These bureaus gather information on your credit payment history, which forms the basis of your credit report. The report they compile includes your current address and past addresses; the amount of debt you carry, what kind of debt it is, the lenders’ names, and your debt payment history, how often credit report inquiries are made and your history of liens and bankruptcies.
Your Credit Score
Each bureau takes your credit report information and uses it to score your credit. Your credit score is a number between 300 and 850, with 850 being the best credit score and 300 the worst. Lenders use your credit score as a general indicator of your creditworthiness, so if your credit score is low, you will probably be charged higher interest rates. Generally speaking those with credit scores under 550 will likely want to improve their credit before they apply for a loan.
There are several factors that affect your credit score, including what types of credit you have, how much debt you carry and your payment history. Keep in mind that the best rates on your auto loan go to people with higher credit scores, so do what you can to improve yours before you buy a car.
How to Check Your Credit
You can see your credit score for free and get suggestions on how to improve it through LendingTree’s MoneyCenter. MoneyCenter lets you track your score over time (at no cost to you) and monitor your progress as you improve your money habits. You can request a free credit report annually from any of the three major credit bureaus. That means that you can check your credit report every four months without paying a fee.
Mistakes can happen, especially for people with similar names or Social Security numbers. Sometimes accounts that you closed still show as open, or accounts that aren’t even yours appear on your credit report. That’s why it’s important to check your credit before you start the car buying process. Not doing so can increase your interest rate, making you pay more money for your car.
If there is an error on your credit report that could negatively impact your credit score, you want to have plenty of time to contact the bureaus and get the error corrected. All you need to do to correct an error is write the credit bureau, and explain which information is inaccurate. The credit agency must investigate the items in question, usually within 30 days. Then you’ll get written confirmation of the corrections.
What if You Have Bad Credit?
If you discover that your credit report is accurate, but your credit score is low, you may want to try to improve it. It may take several months to improve your credit score by paying down your debt and paying all your bills on time. If waiting isn’t an option, there are auto loans for bad credit available. In some cases you can be connected directly with a used car dealership that specializes in helping you rebuild your credit with your auto loan.