Is it Important to Know Your Credit Before Getting an Auto Loan?

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


, - September 28, 2018

It’s important for a consumer to understand their credit situation. When a borrower is aware of not only their score, but also what’s in their credit reports, they can be most prepared for an auto loan and avoid any surprises.

Get Your Credit Report and Score Before a Car Loan

Consumers have the right to pull one free copy of their credit report from each of the three national credit bureaus – TransUnion, Experian, and Equifax – every 12 months. This gives a potential buyer the opportunity to check their credit reports for accuracy, and alert the reporting bureau to remove any mistakes, potentially raising credit scores before getting a car loan.

It’s also good to see exactly what each bureau is reporting. Not every lender reports payment activity to all three bureaus, and not all lenders use the same credit reporting agency when they’re determining a potential borrower’s creditworthiness.

Copies of credit reports can be received for free by visiting www.annualcreditreport.com. Remember, credit reports and credit scores are separate things, and it’s important to know both. Unlike credit reports, getting your credit scores may require a small fee, but they can be easily obtained online for free from resources such as The Car Connection.

How Credit Scores are Calculated

Once a buyer knows what’s contained in their credit reports, they’re able to see what areas need to be worked on to start bringing up their credit scores. The better a consumer’s credit score is, the better the interest rates and loan terms they’ll qualify for from a lender. Typically, a lender uses a person’s FICO score to determine auto loan approval.

There are five things make up a credit score according to the FICO scoring model:

  • Payment History: 35% – If a consumer can see they have payments which are constantly missed or overdue, that would indicate a spotty payment history to lenders. To combat this, make all payments on time and in full to begin building a positive credit history.
  • Amounts Owed: 30% – Lower credit scores may be evident if a consumer’s credit cards are constantly at or over their limit. Lenders look more favorably (and credit scores improve) when a consumer keeps their credit utilization to 30 percent or below.
  • Length of Credit History: 15% – The longer a person’s credit history, the better. If a consumer is new to credit, they’re considered as having a “thin credit file” and it shows in their score.
  • New Credit: 10% – Being approved for new lines of credit can be a plus. But be careful, borrowers who apply for too much new credit all at once can be seen as a red flag for lenders.
  • Credit Mix: 10% – Borrowers who have a mix of revolving credit (credit cards) and installment credit (mortgage, auto loans) may have higher credit scores. Not having enough of both types could lower a credit score.

When a borrower knows their credit score, they can also use that with various online tools to help them estimate potential car loan amounts or see what types of interest rates other people with similar credit scores are qualifying for. Remember, these tools give estimates only and provide consumers with an idea of what they’re getting into for financing.

Knowing Where to Go

Another great reason for knowing your credit score before searching for an auto loan is that once you know what you’re in for, you can go to the right dealer for your situation. Not all lenders have the ability to work with all types of credit – especially bad credit.

When you’re struggling through credit issues, you most likely need a subprime lender to get you financed. These lenders only work indirectly through special finance dealerships, and at CarsDirect, we work with a nationwide network of these dealers. Let us help you find a local dealership that’s right for your situation. Our online auto loan request form is free of cost and obligation, so what are you waiting for? Get started today!

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Meghan Carbary has been writing professionally for nearly 20 years. A published journalist in three states, Meghan honed her skills as a feature writer and sports editor. She has now expanded her skill-set into the automotive industry as a content writer for Auto Credit Express, where she contributes to several automotive and auto finance blogs.


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