Did you know that the average cost of a new car is almost $40,000, while the average cost of a used car is about $20,000?
Used or new, buying a car costs a lot of money. And considering that most Americans live paycheck to paycheck, it’s unlikely you’re going to have the savings available to pay cash.
You’ll need to get an auto loan if you’re looking to upgrade your vehicle. But if you don’t have a solid credit score, you could be out of luck.
Luckily, the credit restoration process can work quickly to increase your score, making it more likely for you to qualify for a loan. Wondering how a credit repair service can boost your score, and why your credit score matters when it comes to financing a car purchase? Keep reading to find out.
How to Get an Auto Loan
If you are pursuing your first auto loan, it can be an intimidating process. But there are only a handful of things you need to be aware of.
First, you’re going to need a down payment. Just like when buying a house, lenders prefer when borrowers can put down a portion of the cost of the car.
The average down payment for auto loans is 20 percent. So if you are looking at $10,000 cars, you’ll want to have at least $2,000 in cash. Paying less than 20 percent down means that you are likely going to owe more on your loan than the car is worth, which is a bad situation.
You’ll also want to get prequalified for an auto loan. This will show you how much you are able to borrow and what interest rate you’ll be paying. You’ll also be able to compare lenders and find the best rate and borrowing terms.
But before you do that, you’ll need to know your credit score. This is the biggest factor when it comes to getting an auto loan. And if you’d like to avoid high-interest rates, your score is what determines that.
Why Your Credit Score Matters
Credit scores range from 300 to 850. Those with scores over 700 are considered to have good or great credit.
As such, lenders are more likely to approve loans and will provide lower interest rates. On top of that, those with better scores may be able to skip a down payment entirely. But why?
Because your credit score shows how trustworthy you are as a borrower. High scores demonstrate that an individual is capable of making all payments on time, keeping debts low, and managing multiple different accounts. They also have a long, consistent history.
They are very low-risk to lenders because lenders are confident they can pay back the money they borrow.
For those with low credit scores, there isn’t a long, consistent history of responsible borrowing. Or if there is, a derogatory mark can lower your otherwise good score.
With a lower score, lenders are unsure if you will be able to pay back the loans. To make a loan would be to take a greater risk. As such, they either might not approve of a loan in the first place or will tack on a high-interest rate, to justify the risk they are taking.
So if you are hoping to secure a new auto loan, the best thing you can do is improve your credit score.
Factors That Affect Your Credit Score
The most important credit score factor is your payment history. Whether you have one open loan, or 10, making payments on time, every time, is crucial.
One missed or late payment can wreak havoc on your score, as payment history makes up 35% of your overall score.
The amount of money you owe across your various debts is also a big factor. If you owe a lot of money, or if you have high credit card balances, that can lower your score.
Your credit history length is important as well. If your first credit account has only been open for one year, that will hurt your score. Lenders want to see a history spanning many years, even decades.
Your range of credit types is another factor. Lenders want to see you managing multiple types of loans, such as credit cards, a mortgage, student loans, and so forth.
And lastly, new credit inquiries can temporarily affect your score. Every time you apply for a new loan, it marks your credit report and drops your score. Too many loan applications will hurt your score.
Derogatory Marks on Your Credit Score
If you make financial mistakes, such as missing a payment on a loan, getting foreclosed on, declaring bankruptcy, or others, your report will contain derogatory marks.
They signal to potential lenders that you failed to pay your loan in some way. The problem is that these marks can stay on your credit report for many years, often 10 or more.
Even if you have managed your finances flawlessly for years, these old dings on your report can haunt you, preventing loan approvals regardless of your current responsibility.
It’s also possible to have mistakes on your credit report that hurt your score. This could include personal information, such as an old address or misspelled name. Or there may be accounts on your report that actually belong to someone else, but they have the same name as you.
And there are many other possible errors that thousands of people have on their reports. These need to be corrected in order for you to have the score you deserve.
How Credit Restoration Can Boost Your Score
When you work with a credit consultant to repair your score, they will be able to craft a unique credit restoration strategy for you. They’ll first determine all derogatory marks and find any errors in your report.
Unfortunately, it isn’t as easy as correcting an error to see a score improve. It can often take months in order to remove derogatory marks from a credit report.
But credit repair specialists will be able to remove these harmful marks years before they would naturally fall off. Doing so could cause your credit score to rise dramatically.
This can not only save you a lot of money by qualifying you for lower interest rates, but it may open the door to even qualifying for an auto loan in the first place.
Take Control of Your Credit Score
When it comes to something as important as your credit score, there is no time to waste. Your finances, your budget, and your future depend on you having the best possible score.
Credit restoration may allow you to experience a better score far sooner than you would on your own. If you are looking to take control of your credit score so you can buy the car that you need, talk to one of our credit consultants today so we can craft a personal credit repair strategy for you.