Are you shopping for a new car, but you’re unsure if you’ll get approved for a lease or financing? Before you start shopping for new wheels, you can do a few things to improve your loan approval odds, like boosting your credit score. While there is no one credit score for a new car, improving your score can help your approval odds and get you a better rate. That being said, even individuals with a low credit score can work toward getting approved for an auto loan. With these tips, you’ll be able to purchase or lease your dream car.
Check Your Credit Score
First, it’s important to know your score and to look at your credit report. Then, you can report any errors and know where you’re starting from. Your credit report will give you tips on how to improve your score personalized for your situation. Remember, boosting your credit score takes time and diligence. The sooner you start improving your score, the faster you’ll get approved for a car loan.
Pay on Time
One of the most important ways that a credit score is determined is by using your payment history. In fact, it accounts for 35% of your credit score. If you don’t pay your bills and credit cards on time, you’ll get derogatory marks on your credit report. On-time payments show lenders that you’re reliable and can manage debt responsibly. If you don’t pay on time, late payments can stay on your credit report for 7 years.
Reduce Credit Utilization
If you’re looking for a car loan, you’ll want to lower your credit utilization. Credit utilization accounts for 30% of your credit score. You should keep your utilization below 30% if you want an excellent credit score and better interest rates. This metric is important to lenders because using less credit shows you’re not overextended financially.
Avoid New Inquiries
You should limit new credit applications to prevent hard inquiries, which can temporarily lower your score. Although, you should always simulate your credit score before taking actions that could affect your credit. If you need more available credit to lower your utilization or debt-to-income ratio, a hard inquiry could be worth it.
Consider a Credit-Builder Loan
If your credit is low or you don’t have enough credit history, a credit-builder loan from a credit union can help establish a solid payment history. A loan can also help show that you can manage different types of debt and will manage an auto loan responsibly.
Determine Your Budget and Start Shopping
Building your credit score for a new car takes time. But, once you take these steps, it’s time to start shopping for your new car. Throughout the financing process, make sure that you are comfortable with your loan terms and that it fits within your budget. You won’t want to not be able to pay for your new car. Missed payments on an auto loan can also lower your credit score and decrease your chances of receiving additional financing in the future.
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Teri Monroe started her career in communications working for local government and nonprofits. Today, she is a freelance finance and lifestyle writer and small business owner. In her spare time, she loves golfing with her husband, taking her dog Milo on long walks, and playing pickleball with friends.
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