A Closer Look at the Relationship Between Cars and Credit Score
The saying that having good credit is important is really quite the understatement. Your credit score can determine a lot about your quality of life. It can potentially affect your ability to qualify for housing. Even be deemed eligible for certain jobs. It most certainly will play a role in determining whether or not you’re approved for a mortgage or additional line of credit. The relationship between cars and credit will affect the interest rates you’ll be paying on a car loan as well.
How Is Your Credit Score Determined?
Each person has what is known as a FICO (short for Fair Isaac Corporation). Credit score that takes into account all relevant credit history data from the credit bureaus. When it comes to cars and credit, the health of your personal FICO score is directly related to the interest rate you can expect to pay on a loan.
As of 2010, the overall median consumer FICO score was around 732. However, scores can be as high as 850 (which is basically perfect) or as low as 300. Most establishments you’ll be looking to in regards to cars and credit will consider a score ranging from 650-699 as moderate, while any score over 700 would be considered excellent.
What Happens When I Apply for a Car Loan?
Whether you’re worried about cars and credit in particular or are looking into a completely different type of loan altogether. It’s only natural to wonder what really happens when a potential lender checks your score. Once the creditor has accessed your credit file. They will see three different scores from TransUnion, Equifax, and Experian.
When assessing your eligibility for cars and credit, the creditor will look at the score that falls square in the middle of the three when considering your application. That said, if the three bureaus report scores of 600, 650, and 705 respectively, the creditor will for all intents and purposes record your score as 650. The higher this score is, the lower the interest rates you can expect to pay.
What Can I Do to Improve My Chances of Being Approved?
One of the best ways to improve your chances of being approved for cars and credit is by working on improving your credit score. The sooner the better! Everyone is entitled to a free credit report. You should check your score from each of the three largest credit bureaus each quarter. Get in the habit of making sure you send away for yours and go over it with a fine-toothed comb.
Dispute any errors or mistakes that you find. In the event your report contains charge-offs or other accounts that need to be paid off. Consider calling the creditor and working out some sort of settlement that will work for both of you. Last but not least, be sure to continue making payments to active accounts on time. Over time, your score will improve.
Although the relationship between cars and credit is probably the most important factor that will affect your potential approval, there are others you should consider as well. For instance, you will need to be prepared to back up claims you make about your income. That said, bring your tax forms from over at least the past two years in order to verify what you make. If you still have trouble qualifying, then consider bringing in a co-signer to help you get approved.
At the end of the day, a little understanding and preparation go a long way when it comes to your eligibility for cars and credit. Explore the possibilities for yourself today!