You've researched the perfect car to buy and the perfect time to buy it. But have you researched your credit report and credit score? Understanding your finances can save you time and money when shopping for a car. Use TrueCredit's simple three-step guide to car shopping.
Step 1: Review your credit reports Failing to check up on your credit early can lead to embarrassing or costly episodes at the loan desk. Even small inaccuracies on your credit data can cause significant changes in your credit score. Here are a few tips to managing your credit:
Order your credit reports - You need the facts first. Choose an online credit report that will give you all the information you need. A 3-in-1 Credit Report allows you to compare and review your financial information from each of the three credit bureaus: TransUnion, Equifax and Experian. Your Credit Score and Debt Analysis are other vital pieces of information allowing you to look at your credit history from a lender's perspective. You can gain unlimited access to your reports, scores, analysis and more through our credit monitoring products.
Watch for errors - Check your credit reports for inaccuracies in your personal and financial information. If there's a mistake, you should report it immediately. If there are significant inaccuracies on your credit reports, consider delaying your purchase until the issues are resolved.
Minimize - Reducing your credit card balances or paying off small debts can sometimes boost your credit and save you money on a loan. Lowering your debt-to-income ratio can also increase your borrowing power.
Avoid excessive inquiries - You can check your credit reports as often as you like without penalty, but if too many creditors or lenders check up on you, it can lower your credit score. Make sure that you really want the loan before you apply.
Pay your bills on time - Even a few months of prompt payments can improve your credit reports. Make sure that you pay on time and check to see that your creditors record your good behavior. You can manage your progress with an online credit monitoring service.
Step 2: Porsche versus Pinto. Calculate how much you can afford Brand new sports car vs. used rattletrap? It all depends on your financial situation. Before you decide that a car is right for you, it's a good idea to evaluate your balance of debts and assets to see how much you can really afford.
Check your inventory - First evaluate what you already own. Do you have a trade-in or down payment to help you pay for the car? These assets can help you negotiate a better rate with lenders and can be especially important if you have problem credit.
Do the math - Calculate your debt-to-income ratio. Divide your monthly payments by your gross monthly income. Lenders look at this percentage to determine how much you can borrow. A ratio of 40% is generally the maximum that lenders will accept. Add in your estimated monthly car payments to see how this figure will change after you buy a car.
Troubleshoot - Use the information you gathered from your credit tune-up to correct inaccuracies and pay-off small debts before you apply. Closing inactive credit card accounts can improve your loan rate. If you have a lot of debt, weigh the advantages and disadvantages of adding another loan to your financial portfolio.
Age matters - Decide if you want to buy a used car or a new car. Buying a used car can save you a heap of money if you do your research. Since new cars generally depreciate 10-35% during the first two years, it's a good idea to check the depreciation rate on the car you're interested in by looking up the current price and the price for the same car made two years earlier.
Step 3: Fabulous financing Applying for an auto loan doesn't have to be stressful if you arrive prepared and armed with your personal information. Investigating your financial history and borrowing power before you start to shop for a new car can save you both time and money.
Think like a lender - Lenders look at a variety of figures to determine your borrowing power. Your income, occupation, home ownership and credit history are key points that gauge your financial security. Go over your personal information before heading out to the dealership.
Do your homework - When you're ready to talk to lenders it's a good idea to shop around. Visit your local bank or credit union to discuss applying for an auto loan. Financing with the car dealer can sometimes be more expensive, so pricing out your options is a good idea.
Dig through your options - Depending on your financial situation and credit history, you'll have several options for the loan term and down payment. Choose the financing option that is best for your budget. Make sure that you understand the factors lenders will research so that you can negotiate the loan rate you deserve.
Problem solving - If you've had credit problems due to divorce, illness or loss of job, it may help to explain your situation to a lender and show how you are repaying those debts. Lenders can be understanding about the impact personal problems have on your finances as long as you can prove to them that you're getting back on track.
Congratulations! You are now ready to supercharge your car shopping experience. By taking charge of your credit information, you can negotiate a better deal on your dream car - and the loan to finance it!
