Give Your Credit a Boost Before Financing Your Car
A credit score is a determining factor in getting approvals for auto loans at favorable interest and insurance rates. It also affects getting credit cards, mortgages, and other types of loans. So, having a good credit score is essential.
Your credit score depends on how you use your credit cards and your credit card debt repayment history. If you have a low credit score, you can improve it in several ways. You will, however, need to maintain discipline and patience over an extended period before you see any real improvement in your credit score.
Improve Your Credit Score
First, if you don’t already have one, get a credit card and use it responsibly. You want to come across as someone who can manage their credit well and can make loan repayments on schedule. If you fail in this, the credit card company may consider you high-risk and a potential loan defaulter.
On the other hand, using your card responsibly over several months or years increases your credit score. If you have multiple credit cards and have repaid all your credit regularly, your credit score will benefit further.
Credit card companies keep records of credit card usage for around seven years and will refer to your record to give you a credit score. So, even if you haven’t recently used your credit card, your previous credit card usage will go toward shoring up your credit score. This is a good reason to keep existing credit card accounts open even if you don’t plan on using them as much.
Credit Utilization Ratio
Credit card companies make use of the credit utilization ratio to increase your credit score. With the credit utilization ratio, they can keep track of how much you use or don’t use your available credit. If you have more unused credit, your credit utilization ratio will be lower. Having a credit utilization that is less than 30 percent is ideal. Keep this in mind and use your credit card accordingly.
If you happen to have a high credit utilization ratio, you can lower it by doing two things. First, pay off all your outstanding credit card debt as soon as possible, and, second, ask the credit card company to increase your credit limit. You can, however, only request a higher credit limit after you have paid off your debts.
Make Regular Payments
You can increase your credit score by paying your credit card bill on schedule. If you make late payments, the credit card company will note it in your usage history, and, even if you have paid off the entire outstanding amount, your delay in making the payment detracts from your credit score. In this case, opening new credit card accounts to increase the credit score will not help. It is better in the long run to re-establish a regular payment schedule.
If you need assistance in boosting your credit score before financing your car, please seek out the services of legitimate credit counselors and free credit monitoring services.
Image via Pixabay: https://pixabay.com/en/desk-work-business-office-finance-3139127/