One common struggle that stands between many people and driving around in new cars is their credit scores. If you fall into the low credit score category, here are some tips that you can utilize to enhance your credit score before applying for a vehicle loan.
Pay Down Revolving Debt
Apart from your payment history, one of the biggest factors that go into determining your credit score is your credit utilization ratio. This ratio is figured out by determining the total amount of revolving credit you are using compared to revolving credit’s total amount that you have available to you. Revolving credit includes your accounts like credit cards, store cards, and lines of credit. In case of a high credit utilization ratio, you can drastically enhance your credit score by paying down your revolving debt to get a ratio of at least 30% or below.
Dispute Inaccurate Information
Before you ever apply for a car loan, it’s a good idea to get a credit report’s copy from all three of the major bureaus. Take a look at it and review each account to ensure that it’s reporting accurately. Any inaccuracies that you find should be disputed with the credit bureaus. It’s not uncommon for a person to have a negative account on their credit report that doesn’t belong to them. By disputing it with the credit bureaus, you may be able to get it removed, which will naturally enhance your credit score.
Build Up Your Credit File
Improving your credit score is going to be highly dependent on your specific credit profile. If you’re just starting out and you don’t have a lot of accounts on your credit report, you can benefit from opening new accounts. For example, if you don’t have any revolving accounts, you may want to consider opening a major credit card account. While this can have a slightly negative impact due to a hard inquiry on your credit report, having a new account can actually enhance your score by increasing the amount of available credit that you have in your credit mix.
Pay Past Due Balances
If you have certain accounts that have past due balances that are owed, it can negatively affect your credit score. By catching up on these past due balances, you may be able to enhance your credit score. Additionally, they’ll want to see that you have the balance paid off before they’re going to give you an auto loan.
Pay Down New Loan Balances
If you’ve recently undergone an auto refinance with cash out, it’s likely that the amount that you owe on loan is very close to the initial loan amount. Having loan balances that are relatively close to what the original loan amount was can negatively affect your credit score. When you pay your loan balances, you can actually see that your credit score can improve.
According to Lantern by SoFi, “different lenders require different credit scores.” However, taking the time to improve your credit score before applying for an auto loan can increase your chances of approval with a great interest rate.