If you’re thinking about getting an auto loan, it’s a good idea to make sure your credit is in the best possible shape before you do. Potential lenders will evaluate your credit report and credit score, along with your income and debt-to-income ratio. Read on to find out how to prepare your credit for an auto loan.
Your Credit Score
Many loan programs have a minimum credit score, and if you know your credit score is low, you may have a hard time getting financing at a low-interest rate. A low credit score isn’t a deal-breaker with every auto lender, but you could end up with a high-interest rate and a high payment.
One of the most important considerations potential lenders will have is your payment history. They’ll be looking for evidence that you have a history of making payments on borrowed money on time. A single payment past due of more than 30 days can seriously harm your credit. Pay all payments on or before the due date and if you do have accounts that are past due, work on getting them caught up.
Pay Down Credit Card Balances
If you’re able to pay down the balances on your credit card, it’s a good idea to do so because your credit utilization is another factor that potential lenders may consider. This refers to the percent of available credit you’re using. Lenders typically prefer to see a credit card utilization rate of under 30 percent. Another way to improve your credit utilization is by getting a new credit card but not borrowing against it since this increases the amount of credit available to you.
Save for a Down Payment
The more you’re able to put down upfront when you buy a car, the less a potential lender has to finance. A lower loan amount is a lower risk for their company, and it may increase the likelihood that you’ll be approved. Try to set aside some money toward a down payment before you try to get an auto loan.
Pay Off Other Loans
If you have any other personal loans or student loans that are close to being paid off, getting a car loan may be easier if you are able to pay them off before you apply for a new auto loan. Eliminating small debts leaves more room in your budget to afford a new payment.
Check Your Credit Report
Before applying for an auto loan or any other type of financing, check your credit report to make sure there’s nothing on it that’s inaccurate. Errors on credit reports are surprisingly common, and you could find payments reporting as late even though they were paid on time, incorrect balances, errors in personal information, duplicate accounts, or even accounts that don’t belong to you. Dispute any errors you find as soon as possible.
When you partner with Dovly, we take care of contacting the credit bureaus for you to correct errors and make sure your credit reports are completely accurate. Dovly is an automated credit repair engine that can help you track, manage and fix your credit. Get in touch with Dovly today.