Buying a car is one of the biggest purchasing decisions that people make. It is next to buying a house or a property. That is why, if you would like to invest in a vehicle and you don’t have enough cash or savings yet, your next go-to option would be a car loan. For getting a car loan, there will be a few things that lenders will consider to check if you are qualified, and here is the part where you will need to have your credit report ready.
Here are some of the things you need to know first about how your credit report will affect your auto loan.
Your credit report is something that many lenders will find valuable
That is because your credit score is a proof of how trustworthy you are as a borrower. It is in your credit score that they can find detailed information about your payment history, the debts you had in the past and the current ones, as well as the types of credit you have. But of course, aside from your credit score, lenders will also be asking more information from you including your employment history, current income, your debt-to-income ratio and the amount that you can afford for the down payment. All these things are important because lenders will refer to these information when they make a decision about the approval of your loan.
You need to check your credit score the moment you plan to apply for an auto loan
Before you even apply for an auto loan, it is important that you request a copy of your credit report. And it will be best if you request for it at least 3 to 6 months in advance. This way, you will have plenty of time to file for dispute in cases when it shows any incorrect or inaccurate information. Remember that it takes as long as 45 days to resolve disputes. Requesting for a credit report as early as you can will also buy you more time to improve your credit score before the actual filing of your loan. There are many ways for you to improve your credit score. Just make sure that moving forward, you make on time payments. You also need to stay below the 35 percent of your credit limit, and having various types of credit should also help. Improving your credit score may take time that is why it is better if you find check it as early as possible.
Getting a copy of your credit report should not be that hard
There are some banks and credit card companies who already provide you with a copy of your credit score as a part of your monthly statement. However, you may be charged a fee if you ask for it from credit card agencies. But if you only ask for it once a year, then there should be no charge. It means that every year, you have a free opportunity for you to take a look at your credit score and make sure that all information are accurate.
Lenders will be checking a few factors in your credit score
They will be looking at the amount that you already owe. They will also be checking how much unused credit you have available, how prompt you are in paying your debts, and if you have recently applied for a new credit. However, even if you have your credit report ready, you are only halfway through the process when you approach a dealership. It is because dealers can still give you a higher interest rate which will result in higher payments. However, if you get auto loan pre-approval, you can lock in the amount as well as the interest rate, so when you negotiate with a dealer, you won’t be forced to spend for more than what you are supposed to.
Any credit score will most likely get you an approval for your auto loan
However if you have a low credit score, it will mean that you will have to pay for a higher interest rate. The benefit you can get from getting a good and fair interest rate is that it can save you thousands of dollars if you think about the entirety of the loan. So the best thing to do is to shop around for the best loan rate considering your credit score. And if you are not really in a hurry just yet to buy a car, you might to wait a little longer until you can improve your credit score.
So, how do you read your credit report?
Okay, so now that you have your credit report ready, you will see there a whole bunch of numbers, abbreviations and some terms you may have not encountered before. In the United States, there are three major credit reporting agencies that issue your credit reports and they are Equifax, Experian and TransUnion.
If you will be getting your credit reports from all three of those agencies, it will be much better. That’s because everything there does not necessarily show the same information. The reports from the three agencies may be different because creditors just provide the information to any creditor they want, and sometimes they do it just to one or two but not all.
When you request for your credit report, it will be best if you request for it directly from the credit bureau because it is much more consumer friendly and easier to understand.
The free credit report you will get from the credit bureaus is divided into four sections namely identifying information, credit history, public records and inquiries.
The information part is where you will see your personal information, like your name, Social Security number, address, birth date, telephone numbers, driver’s license numbers, etc. The next part is the credit history. This is now where you will see the accounts you have under specific creditors. The account numbers may be scrambled though for security purposes. The credit history section will also show all of your open and closed credit accounts and the tracking on how you repayed them.
The next is the public records which shows a list of all the records that are related to your finances like bankruptcies and property liens. And then the last part is the credit inquiries section which will show you who checked your credit in the past two years including lenders, employers, etc.
If there is anything that needs more of your attention, it should be the section two which will show you the payment history. And if you can spot anything erroneous in that report, you should file a dispute right away.