No one can truly predict what will improve your credit, but financing a car may help your chances.
Are you concerned about financing a car with bad credit? As it turns out, more buyers with poor credit are being considered for both new and used car loans than ever before. In fact, for buyers with a poor credit score, getting a car loan and responsibly managing payments may improve credit ratings over time. Let’s look at some important tips that may help improve your credit.
Look at Your Credit Report
The first (and most important) step is finding out your credit score. Without looking at your credit report, you’re leaving it up to a lender to tell you what’s on your report. Before applying for a car loan, check to make sure that your credit report accurately reflects your personal credit history. Fraudulent activity, such as identity theft, can drastically affect your credit rating without your knowledge. If there are errors on your credit report, dispute the report’s accuracy as soon as possible by contacting the reporting agency.
Stick to a Budget
After reviewing your credit history, it’s important to establish a realistic budget. If you have bad credit, it will be difficult to make any progress towards credit score improvement if you’re not prepared to follow a budget. Before applying for loans or shopping for a vehicle, review your expenses and come up with a comfortable monthly amount that you can afford. Later, when you’re shopping for a vehicle, let the dealership know what you can afford to pay per month. Setting realistic expectations and sticking to them is key to improving your credit.
Don’t Be Afraid to Shop Around
If you have bad credit, it’s likely that your interest rate will be higher than someone with good credit, but don’t let that stop you from shopping around. Some lenders are more lenient than others and shopping around before making a commitment may save you time and money in the long run. A good place to start is close to home. If you already have a relationship with a bank or credit union, leverage your standing as a loyal customer to try to get a better interest rate.
Make Your Payments Reasonable
Unfortunately, many individuals with poor credit scores start out with a high interest rate for the first year of a loan. When interest rates are higher, it can be challenging to responsibly manage these payments for a long period of time. The good news is that, after a year, many buyers qualify for refinancing, provided their payment history has been good for those previous 12 months. Refinancing your loan after the first year can help reduce your monthly payments and also save some money.
Take Credit for Your Payments
The best way to improve your credit score is to work with a lender that reports to all three credit reporting agencies. Some lenders do not report to agencies like Equifax, Experian and TransUnion. If your lender isn’t reporting your good payment history, you’re not taking credit for making consistent payments. Simply stated, without a record of positive changes to your payment habits, your credit score most likely won’t budge.