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Strategies to Increase your Credit Score for a Car Loan

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You need a good credit score to get a car loan

Bad credit scores can affect several different facets of your life. They can keep you from getting favorable rates for financing. Or they can also result in the cancellation of your auto loan application altogether. If you need to buy a car, a good credit standing would play a significant role. Yet, if you have less than stellar credit scores, there are certain things you can do to build your credit score. Here are some steps you can take now to start on the path to better credit.

Ensure your credit reports are accurate

The first step to improve your credit scores is making sure your credit report is accurate. You can request credit reports from the three major credit bureaus: Experian, TransUnion and Equifax. Once you get a copy of your credit report, take time to go through the details. If you find anything erroneous, file a dispute right away. Otherwise, the mistakes will reflect on your credit score.

Identify the things that you need to improve

The discrepancy in your credit report doesn’t mean that it’s causing the bad credit score. There could be several other factors that are causing your bad credit. If there are no mistakes, dig deeper and identify the other things that impact your score. Take a look at your payment history. Late payments have the greatest effect on your bad credit score. Also revisit the total amount of your debt. Creditors would usually look at this aspect especially when you’re applying for a loan. It is because they worry that you might not be able to take on more credit.

Create a plan on how you will improve your credit score

You have identified the areas you need to work on so it’s time to create a plan on how to build your credit score. Start with keeping your balances as low as possible on all your credit cards. Also begin paying down your debt instead of moving it around. If you have unused cards, do not close them because they can also help you fix your credit scores.

Don’t get your old debt removed

When you get your old debt settled, there’s no need to have it removed from your credit report. It is something that can be considered as good debt because you paid it as agreed. In fact, it is even better for your score if you keep a longer history of good debt. So leave the old debt and good accounts for as long as possible.

Pay bills on time

Making on time payments is one of the most important steps required to help raise your credit score. Credit scores are determined by the information on your credit report. When you pay your bills on time, it will have a positive impact on your credit report.

Take out smaller forms of credit

Taking out smaller forms of credit can help lenders show that you can be a responsible payer. For example, you can get a mobile phone contract or anything that you could get accepted for. Make sure that you manage them well. If you do, lenders will feel confident that you pay your bills and you can make on time payments each month.

Reduce credit utilization

Credit utilization refers to how much credit you have used versus your top credit limit. Keeping credit utilization low can help raise your credit score. Use more than 50 percent of your credit limit and creditors will think you are struggling. Another way to reduce utilization is by requesting an increase in your credit limit. When the request for an increase is granted, make sure that you don’t use it up for your credit card purchases. Leave it there to give your credit score a boost.

Fixing your credit score is not something that can be done overnight. But taking these steps will help you start building good credit for your car loan.