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3 min read . Published 10 February 2023
Written by Allison Martin Written by

Allison Martin's work began over 10 years ago as a digital content strategist. Since then, she's been featured in a variety of top financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com.







The edit was done by Rhys Subitch Edited by Auto loans editor

Rhys has been editing and writing for Bankrate since the end of 2021. They are passionate about helping readers feel confident to manage their finances through providing concise, well-researched, and clear facts that break down otherwise complicated subjects into digestible pieces.









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You're looking to secure the best deal on the car loan but be aware that it may be challenging due to your credit standing. On average, those with good credit scores will be offered the best rates. For instance, according to research, those with a score of 300 to 500 have an average of 19.81 percent APR for a used car, while those who have a credit score of 661 to 780 are charged 5.47 percent. If you are able to hold from buying, you can implement strategies to build your credit before buying a car. Be aware you are aware that the lender will likely assess your ability to afford the loan by calculating your debt-to-income ratio. Take into consideration paying down existing debt to reduce your DTI ratio, in addition to other ways to boost your score on credit. Four ways to improve your credit before buying a car Your credit rating is a major factor in the for a car loan. So, you want to get your credit in tip-top shape before you apply, starting with these actionable tips. 1. Disput any errors you find that appear on your credit file. Begin by . Examine the report for accuracy , and then highlight any errors you notice that could drag your score down. For instance, maybe the report claims that you failed to make a payment when you actually paid in time. The next step is to make a complaint by either phone, mail, or online with the three major credit bureaus such as Experian, TransUnion or Equifax and report the incorrect data. The credit reporting company will contact the creditor or lender to further investigate your dispute. If the information on your report cannot be verified the report will be canceled, and your score could be improved. 2. Make sure you pay your bills punctually. Payment history is a major factor in 35 % of the FICO credit score. If your credit card or loan account is 30 or more days overdue the lender or creditor is likely to declare the account delinquent, and your credit score could be affected. If you are able to make timely payments on your credit account and your score improves as time passes. It's equally important to bring past due accounts up to date in order to prevent collection activity and damage the credit rating. 3. Pay down your credit card debts The FICO credit scoring model rewards consumers that responsibly manage their obligations to repay their debts. Therefore the amount that you have to pay is the second-largest element of your credit score. The amount of your credit line that you're currently using, is the second largest part in your credit rating. The lenders want to see your credit utilization at less than 30 percent. If it is higher, you should work to pay off your balances, which could raise your credit score. You may also be eligible for a competitive rates on auto loan. 4. Avoid applying for new credit Every time you apply for credit, you will receive a hard inquiry and could lower your score on credit by a few points. Although the effect is short-lived, multiple inquiries within a short period could hurt your score. However, a small drop of your credit rating can result in a higher interest rate -- and consequently could cost you several hundred or thousands in additional dollars. Try to shop within 2 weeks. How credit scores work Knowing this can help you efficiently improve your score. Credit history: comprising about 35 per cent of your credit score, which includes your information on payments as well as delinquencies, and the number of accounts. Credit utilization ratio: 30 percent. This is the sum you owe in relation to the credit limit. The length of your credit history is 15 percent. The longer you've been holding credit, the better. New credit 10. Credit bureaus look at the number of accounts you've opened recently. The opening of too many accounts could lower your score. Credit mix: 10 percent. The fact that you have several credit types -- including loans, cards loans and retail accounts can work to your advantage in this case. The importance of your credit score when buying a brand new car. Lenders make use of your credit score to gauge your creditworthiness as well as the probability that you'll be in default on your loan payment. There is less risk for the lender if you have good or excellent credit. This means that you typically will be awarded lower interest rates . With a lower rate of interest the monthly payments will be less, as well as your loan will be less expensive overall. Conversely, are typically higher. Bad credit car loan alternatives If you're looking for an auto loan, there are . For example, buy-here, pay-here and pay-here dealerships are geared towards borrowers with credit challenges -- however, they typically charge high rates of interest, and should be considered as an option last resort. Consider reaching out to your credit union or bank to see whether they'll allow you for the loan depending on the quality of your current relationship. Online lenders could also be a good match as they often have the ability to prequalify on their website , so you can see if you are eligible and view potential loan rates. The bottom line is a strong credit score, steady source of income and the ability to reduce your debt-to-income ratio can make you eligible for a great deal in the form of an auto loan. So, it's worth improving your credit health prior to applying. When you're ready to apply, it's important to discover the most suitable options that fit your budget. Related Articles:



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Written by

Allison Martin's career began more than 10 years ago as a digital content strategist, and she's since been published in numerous prestigious financial outlets, including The Wall Street Journal, MSN Money, MoneyTalksNews , Investopedia, Experian and Credit.com.



Edited by Rhys Subitch Edited by Auto loans editor

Rhys has been writing and editing for Bankrate from late 2021. They are committed to helping readers gain confidence to control their finances through providing clear, well-researched information that breaks down otherwise complex subjects into bite-sized pieces.






Auto loans editor




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