Before you apply for any car loans, you should know your credit score. Credit is a highly important aspect in figuring out what kind of car you can afford.
The majority of lenders tend to look at your FICO credit score to find your eligibility. This score is based on five factors.
1. 35% Payment history
2. 30% Amounts owed
3. 15% Length of credit history
4.10% Credit mix
5.10% New Credit
The FICO score can vary anywhere between 300 to 850. Lenders have specific requirements for any potential car buyer including a particular credit score, income, and residency requirements.
You can boost your credit score in a variety of ways, but it does take some time, especially if your credit isn’t the best. Wondering how to raise your score? Here are four primary methods to do so.
How to Easily Boost your Credit Score for Car Loans and Other Important Purchases
Keep up with your reports and credit score. Knowing what your score is and checking it frequently is essential. You’re able to obtain a free copy of your credit report every year from each of the credit bureaus: Equifax, Experian, and TransUnion. It’s crucial you make sure everything is correct. If there’s any inaccuracies or negative marks you don’t understand, ask and possibly dispute them.
Pay your bills on time. This step is perhaps the most important thing you can do to keep up and boost your credit score. Payment history is the single most substantial determining factor for credit scores.
Lessening the amount you owe. Another method to boost your credit score is decreasing your credit utilization ratio. In other words, your credit limits in comparison to the amounts you’re using. High credit card balances impact your credit score negatively. However, if you pay them off, it could help improve it relatively quickly. Make sure you’re paying as much as you can on your credit card monthly. In an ideal situation, your credit utilization ratio should be lower than 30 percent.
Take out other kinds of credit. It might seem counterintuitive at first, but taking out multiple lines of credit can improve your credit score as time goes on. That’s not to say you need to apply for various credit cards at once. Asking for too many in a short amount of time can actually lower your score from the barrage of hard inquiries and can even be a red flag for individual lenders.
The main thought to take away is the importance of using credit responsibly to build your score. If you don’t have a credit card, it would be helpful to get one before applying for a car loan.