Understanding your credit score is the all-important first step towards buying your next vehicle. In the next three minutes, we’ll tell you everything you need to know about your credit score and what you need to do to improve it in time to make your purchase.
Before we start, take a deep breath, get all your shudders out of your body, and relax. Credit isn’t nearly as scary or intimidating as some sites would make you think. Once you have a plan, getting your credit score to where you need it to be is all about staying disciplined.
First Thing’s First: What’s a Credit Score?
Your credit “score” is a number that evaluates your borrowing habits and determines whether the banks/lenders consider you reliable or unreliable. In simpler terms, it measures whether they can trust you to pay back their money on time. If you’ve borrowed money in the past, you should have a credit score.
Your credit score is always changing, though, due to:
- How much you borrow
- Whether you’re paying your bills on time
- Whether you’ve just opened a new bank account
Each of these behaviours will affect your credit score, and any changes will be reflected on your credit report. Any time you want to borrow money to buy (aka finance) a house, car, or even furniture, the company you’re buying from will “pull” your credit report to check out your score. You will get approved for the loan if your credit score is high enough. If it’s not, you’ll get denied.
Before we explain what to do if you’re denied, let’s go through the credit report first.
What’s a Credit Report?
Your credit report is compiled by credit reporting agencies like Equifax and TransUnion. The report provides lenders with the necessary information to make an assessment on approving a loan.
Your credit report features a 3 digit number — your credit score — and it ranges from 350 to 850. The higher the number, the more likely you are to repay your debts on time.
Credit score quality is broken up into five categories…
- Very Good – 750 and Above
- Good – 700 to 749
- Fair – 650 to 699
- Poor – 550 to 649
- Bad – 550 and Below
The higher your credit score the better your credit, the more reliable you are to lenders.
A high score proves…
- You have stayed good on your accounts
- Made payments on time
- Properly managed your credit cards and/or loans
The opposite can be said for a lower score.
Low scores are generally caused by…
- Missed payments
- Trips to collections
You can check your credit score through various online websites, as well as through Equifax and TransUnion (for a small fee).
It is definitely worth checking on your score, as there can sometimes be errors that need to be taken care of. Any error can potentially make or break an approval.
Credit Report Terminology
To better understand credit, lets take a look at some terminology featured on your credit report.
I – Installment Credit
- The best example of an Installment Credit is a car loan.
- This is a loan over a specific term that features regular payments until the loan is paid back in full. A typical car loan will be paid in bi-weekly installments (every two weeks) over five, six, or seven years.
O – Open Status Credit
- An example of an Open Status Credit situation is a Line of Credit with your bank.
- You are free to borrow (as needed) from a fixed pool of money.
R – Revolving Credit
- A Revolving Credit loan is like a credit card.
- This describes money borrowed within a specific credit limit. Make regular payments over time to continually pay off debt. There is no specific term, unless stated.
M – Mortgage Credit
- A loan in relation to the mortgage on your home. Duh.
How to Improve Your Credit Score
Pay your bills on time. It’s that simple.
Money was lent to you with the intention that you would pay it back, so do exactly that–pay it back. Continue to make at least the minimum payment on accounts–like your credit cards–every month. Not doing so will negatively affect your score. Do not go over your credit limit, either. As a general rule, try to use under 35% of the allotted credit if possible. So if you have a credit limit of $5000, keep the amount borrowed under $1750.
Time heals everything, and credit is no different. The longer you have a credit account and consistently pay it off, the more your credit will improve. This is why older people will generally have better credit when compared to someone who just got their first car loan.
Believe it or not, getting a credit card can actually really help your credit. It is easy to manage a low-balance credit card. As a result, this will gradually build your credit and prove that you can continually pay it off. In addition to this, a car loan is one of the best ways to rebuild your credit (seriously). A car loan is an installment loan, which mean you make regular payments over the course of the loan. If paid on time, this will greatly boost your credit throughout the period of the car loan and will positively impact the credit report once paid off.
Go Auto Can Help!
Just like a credit card, an auto loan can drastically help improve your credit (if managed properly). Even if you’re having credit issues, Go Auto is here to help.
We deal with over 15 lenders and have the options available to get you approved despite your credit situation. Go Auto Finance, our finance company, specializes in lower end credit, and can get you approved even when the bank’s can’t! That’s because we can finance you with our own money.
With over 11,000 vehicles currently available, we are sure to find a vehicle that fits your budget and driving needs. Start building your credit with our various credit rebuilding programs, and take advantage of an interest rate that wont break the bank.
If you’re interested in finding out what you qualify for, contact one of our credit experts and get approved today!