SAN JOSE, California, May 18, 2021 / PRNewswire / – When buying a new car, a little initial research can often save you a lot of money. Finding an affordable make and model with reasonable insurance costs is a good place to start. Buying the best deal on the vehicle of your choice can also be a good idea.
But there is another money-saving strategy that many people overlook. If you take the time to prepare your credit, you could be in a position to get better terms and a lower interest rate on your new car loan.
For more information on loans and credit, visit the myFICO blog at https://www.myfico.com/credit-education/blog
More attractive auto financing could save you hundreds or even thousands of dollars in interest. If you’re looking for a new car loan, here are four tips that can help you prepare for your credit.
1. Review your credit reports.
When you apply for a car loan, the lender will likely review your credit report from at least one major credit bureau: Equifax, TransUnion, or Experian. It is therefore a good idea to check your three credit reports yourself first. If there are any surprises, you want to know them before you start filling out new loan applications.
You can request your free credit reports online at AnnualCreditReport.com. If you prefer, you can also fill out a Annual Credit Report Request Form and mail it to the address at the top of the form. The Fair Credit Reporting Act (FCRA) entitles you to a free report from each of the three credit bureaus once every 12 months.
When reviewing your credit reports, keep an eye out for any information that seems incorrect or suspicious. If you discover any questionable items, you may need to take action.
2. Correct any credit report errors, if you find any.
Errors on credit reports can cause a lot of problems, especially when looking for new financing like a car loan. Credit report errors can impact your FICO® scores and make you appear to be a greater credit risk than you are. Therefore, you should go through the process to dispute the errors on your credit reports if you discover any problems.
Some common credit report mistakes to watch out for include:
- Errors regarding your personal information (name, social security number, date of birth, etc.)
- Accounts that do not belong to you
- Duplicate business lines or collection accounts
- Obsolete items that have been on your report for too long
- Incorrect account balances
- Inaccurate late payments
Federal law (FCRA) allows you to dispute any incorrect information you discover on your credit reports. If you suspect that the inaccurate data on your credit report comes from identity theftyou may also want to consider taking additional action (such as a credit freeze or a fraud alert).
3. Reduce your debt, especially credit card balances.
Once you’ve confirmed that your credit reports are accurate, it may be a good idea to research some concrete ways to try to improve your FICO® scores. Paying your bills on time is of course essential. But some people can also benefit from reducing certain types of debt, such as their credit card balances.
Use of credit– also known as your credit card balance-to-limit ratio – is a key factor considered in your FICO® scores. In general, when you pay off your credit card balances, it should lower your credit utilization rate, which can have a positive effect on your FICO scores.
Remember, you should not close unused credit cards in order to improve your FICO® scores. In some cases, close a credit card could increase your credit usage rate and trigger a decrease in your score instead.
4. Understand how a better FICO® score could benefit you.
90% of major lenders use FICO® scores to guide their lending decisions. So there is a good chance that your FICO score is a factor when you apply for a car loan.
Each lender sets their own standards for the credit score you need to buy a car. Therefore, it can be difficult to determine the precise FICO® score you will need to qualify for a car loan. Nonetheless, the following is true. The higher your FICO score, the better your chances of qualifying for a loan.
A better FICO® score can also help you save money in interest. The savings potential can sometimes be significant. For example, if you work hard (and wait) to improve your FICO scores from 580 to 680, you could save around $ 8,000 on a $ 30,000 five-year car loan.
Source: Loan savings calculator based on the rates of April 2021.
You can use the MyFICO Credit Savings Calculator yourself to estimate the interest a car lender might charge you based on your current FICO® score range and the state you live in. This free tool can help you decide if now is the time to apply for a new car loan or if you are better off working towards a higher FICO score range first.
myFICO makes it easier to understand your credit with FICO® Scores, credit reports and alerts from the 3 bureaus. myFICO is the consumer division of FICO – get your FICO scores from the people who do the FICO scores. For more information visit https://www.myfico.com/credit-education/blog.