Whether you’re buying your first car or upgrading your old vehicle, you may want to get a better deal on your car loan. Besides lowering your interest rates, fetching a better deal can also decrease the down payment for your dream car and result in lower monthly payments.
But if you don’t have a good credit score, your dream of getting the ideal car loan might just remain unfulfilled. With that being said, not all hope is lost. You can still get the car loan terms you want by improving your credit score.
Interested in learning more? Here’s how to improve your credit score for a better car loan:.
What is a Good Credit Score?
Similar to learning the differences between personal and business credit cards, it’s important to understand what sets a good affordable loans credit score apart from a bad one. To put it simply, the FICO credit scores that are most widely used are calculated in ranges of 300–850. A good credit score in this range starts above 669. But if you have a score above 799, you get into the excellent category and can enjoy perks like even more favorable interest rates for your car loan.
How Do You Check Your Credit Score?
Your credit score is calculated when creditors report your activity to the 3 credit bureaus. These bureaus then summarize your financial standing into a credit score.
You can request a credit report through these platforms by using independent providers. This gives you an idea of where you stand in terms of your credit score and how much improvement you need to make in order to get into the good to excellent ranges of this scale.
How to Improve Your Credit Score
Now that you understand the basics behind your credit score, you can easily learn how to improve it. You may also be happy to find out that most of these tips don’t require you to break into your online savings account. All they ask of you is to be careful about your financial decisions.
Make Loan Payments on Time
The first step here is to make your loan and credit card payments on time without fail. This is the biggest factor behind calculating your credit score that contributes to maintaining a good financial standing.
This is where it may do you well to consider how to renew payday loans if you cannot pay them off at once.
Don’t Max Out Your Credit Cards
While it might be tempting to use your entire credit limit every month, doing so can heavily impact your credit score. As a rule of thumb, do not use more than 30% of your credit limit. The lower this threshold, the better. You can also turn to solutions like a custom cash envelope system to follow this tip.
Increase Your Credit Limit
If you want to use as little of your approved credit limit as possible, increasing your limit can be a great way to achieve that feat. But before you do so, ask your bank if the action is possible without affecting your credit score. This way, you can remain mindful of the impact of your credit score on car financing.
Diversify Your Credit
When you diversify your credit with a mix of affordable loans, credit cards, and lines of credit, you can improve your credit score as a result. However, this requires some planning and a lot of control over your spending habits. With that, you also need to remember that this method can take some time to implement and may also temporarily harm your credit score.
Think Twice About Applying For New Loans
Continuing from above, whenever you apply for new loans, lenders make a “hard inquiry” that temporarily lowers your credit score. That is why, while vying for a car loan, it’s important that you fulfill other big purchases with your own funds through solutions like a compact budget planner instead of taking out new loans. This can help you steer clear of unwanted dips in your credit score.
Apply For Your Car Loan After Improving Your Credit
Once your credit score has moved into the good, very good, or excellent ranges, you can go ahead and apply for your car loan. This can ensure that you get better rates and terms for your auto loan. In turn, you can drive your dream car without an excessive financial burden.
