Know your credit score before you start any other aspect of looking for a car.
We recently interviewed a finance manager from a large car dealer.
We asked him how many people know what their credit score is when they come to your dealership.
The answer is both astounding and scary!
“Some people have an idea what their credit worthiness is but do not know exactly what it is. A number of people have no idea what their credit is.
They are relying on us to give them a loan based on what we see on their report. However there are a few people that come in with their report in hand and they are always going to get the best rate from us.”
A credit score is the major determining factor regarding your creditworthiness. Unless you are buying your car for cash, you must know your score before you can move forward.
A score of 720 or above is considered excellent credit, those who score in this range will have the easiest time obtaining loans, and get the best rates.
Many lenders consider a score 620 or less as subprime. These people can still get loans but will face higher interest rates.
If your credit score is below 550 your chances of getting a loan are very slim to none. Clean up your credit, get it over 600 and apply to one of the subprime lenders.
Many people with really bad credit opt for a “buy here pay here dealer”. Beware of these guys because they generally sell older high maintenance cars at high interest rates. You will never get out of this loan and the car will need major repairs well before the loan is paid off.
There are several factors that determine what your credit score is.
1. Payment history. This is the biggest factor. How timely have your payments been? How much do you owe? If you’ve made late payments, how recently did these payments occur? If you’ve got few or no late payments, your score will be improved. Also, recent late payments will hurt your score more than those made years in the past.
2.Outstanding balances. Owing a lot on many accounts won’t always hurt your score. If you’re at or near your limit on your credit cards and other “revolving credit” accounts, though, your score will be negatively affected.
3. Credit history. If you’re just starting to build your credit history, there’s not much you can do to improve your standing in this area over the short term.
4. New credit. Applying for a slew of new credit is one of the easiest ways for people to mar their rating. FICO evaluates how many new accounts you’ve established, how long it’s been since you’ve opened a new account and how many recent credit inquiries have been made by credit reporting agencies. Running your own credit report will not hurt your score.
5. Credit type. What matters here is your mix of installment loans, mortgages, retail accounts, credit card and finance company accounts. Having a great credit score with no major purchases will hurt your ability to get a better interest rate.
As sad as it sounds, if you go to a dealer without knowing your credit score you are at the mercy of their finance department. It gives them the ability to bump your interest rates higher and some will outright lie to you about your score. Be prepared and save!
Have a copy of your credit report with you when you go the dealer.