You may have heard about your credit score and how it can affect your ability to get a loan. But do you know exactly what a credit score is, why it’s important, and what you can do to improve yours?
Your credit score is essentially a measure of how likely you are to repay someone if they give you money. Having a good credit score can open doors to new opportunities like getting an apartment, renting a car, or buying a house.
If you struggle with your credit score and are looking to buy a car soon, here’s how you can improve your score and qualify for the right car loan sooner rather than later.
Know the types of car loans and which one is best for your score
There are two basic types of car loans: unsecured loans and secured loans. Finding a bad credit car loan direct lender may appear hard, but it’s not impossible. The type of loan you choose will significantly impact your ability to get a reasonable interest rate associated with your loan. Understanding the difference between the two will help you identify which will be the most beneficial for your credit score.
- Unsecured loans – Unlike secured loans, unsecured loans don’t have any collateral associated with them. They’re generally given to borrowers with the best credit scores who are considered the least risky since they have nothing to lose. Borrowers with the best credit scores will generally qualify for the best interest rates and lowest monthly payments. If you have a less-than-perfect credit score, you’ll likely need to get an unsecured loan to get a decent interest rate and monthly payment.
- Secured loans – If you have a below-average credit score, you may be able to get a secured loan. With this type of loan, you put down collateral in the form of a vehicle you own. If you don’t make your payments, the lender can repossess your car and sell it to get their money back.
Check your credit report and understand what’s on it
Your credit report is a record of all your past and current credit accounts, including things like credit cards, student loans, and car loan payments. It also includes details like the account’s balance, the account’s original due date, the account’s current due date, the account’s interest rate, your credit utilization ratio, and any payments that are 30 or more days past due.
Your credit report is an integral part of your credit score and can make a big difference in qualifying for a car loan. Therefore, you must keep an eye on your credit report and ensure it’s accurate. Errors in your report can cause your credit score to drop and make it harder to get a car loan. If you find any errors, you can contact the credit reporting agency, and they’ll investigate.
Pay off any outstanding debts to boost your score
One of the easiest ways to improve your credit score is by paying off any outstanding debts you have, primarily any debts that are 30 or more days past due. If you can pay these off, they won’t show up on your credit report anymore, and your credit score will increase.
Some lenders will even take the money you used to pay past-due debts and apply it to your car loan. This can be useful if you have a low credit score and need to use a collateralized loan to get a good interest rate. Some lenders may even let you pay off the interest built up on a delinquent loan. This will make it easier to repay the loan and improve your credit score over time.
Get a secured loan to help build up your score before going after an unsecured car loan
If you have a below-average credit score, your best bet might be to get a secured loan. A secured loan is one in which you put down collateral in the form of a vehicle you own. If you don’t make your payments, the lender can repossess your vehicle and sell it in order to get their money back. While repossession is a scary thought, it can actually be a good thing if it allows you to improve your credit score while still driving a vehicle.
You can apply for an unsecured loan after you’ve had the vehicle under your name for a while and made several on-time payments. This will help you build up your score and make it easier to get a better interest rate on a future car loan.
Establish a track record of on-time payments with a basic loan
If you’re confident that you can repay a car loan, your best bet might be to go for a simple unsecured loan. These loans generally have the lowest interest rates and make it easier to get approved for a car loan with any credit score. The catch is that you must have a reliable source of income to qualify for these loans.
An easy way to prove that you can pay off a car loan is to continue making on-time payments with a basic car loan. This will help you build up a track record with your lender and make it easier to qualify for an unsecured loan in the future.
Once you have enough of a track record, go after an unsecured loan with great terms
If you’ve been making on-time payments and have a good credit score, you should be able to go after an unsecured car loan with excellent terms. The key is to shop around and find lenders who will give you the best interest rate and monthly payment. Make sure you know what you qualify for before you sign any contracts. Once you’ve found the right lender and terms, you’re one step closer to driving your dream car.
In conclusion, the best way to improve your credit score is to keep an eye on your credit report and pay off any outstanding debts. When you’re ready to purchase a car, go for a secured loan to build up your score and qualify for an unsecured loan with great terms.