Your credit score is a numerical representation of your credit history report, which includes details of all your credit accounts and loans, and how good you've been about paying them. It also reports any defaults, repossessions, or bankruptcies. Credit scores, which for most people falls between 400 (poor) and 800 (excellent), are a major factor in determining the cost of buying or leasing an automobile. The score determines what interest rate you'll pay, or even if you can get approved at all. It also determines if you will be allowed to take advantage of special new-car incentives, such as 0% APR loan and lease offers.
There are three major credit agencies in the U.S. - Equifax, Experian and TransUnion. When you apply for a loan to purchase a car, the dealer has to check and give your credit score information to the finance companies they work with. Scores can vary a little or maybe a lot between agencies. Unfortunately, you can't control how the lender interprets your credit score. A score of 700 is considered excellent, for others 720 or higher is considered excellent. A score of 620 while not that bad, may shut you out of a deal with one finance company and / or charge you a higher what they call "subprime" interest rate, costing you more money out of your pocket. If you're in the market for a car and know you want to finance it, you absolutely need to know your credit score before walking in to the dealership. It's easy to obtain online with companies such as MyFico.com and CreditScore.com. Not only will you get your score, looking at your credit history report will allow you to find mistakes and old data that may be unfairly damaging your score. Under the Fair and Accurate Credit Transactions Act, you can obtain one annual free copy of your credit report. For more information visit http://www.annualcreditreport.com or call 877-322-8228. You will still have to pay a fee to get your scores.
What can you do to improve your credit score rating?
Pay your bills on time. Delinquent payments can have a major negative impact on your score and the longer you pay your bills on time, the better your score. For example, someone with an average credit rating of 706 can raise their score by as much as 20 points by paying all their bills on time for one month.
Keep balances low on credit cards. High outstanding debt can affect your score. Maxing out your credit cards could lower your average score by as much as 70 points.
Don't open a number of new credit cards that you don't need. New accounts will lower your average account age, which could actually lower your score by up to 10 points.
Have credit cards - but manage them responsibly. In general, having credit cards and installment loans (and making timely payments) will raise your score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
Get current on delinquent accounts. Your payment history makes up 35% of your credit score. Getting current on your delinquent accounts will have a great impact on your credit.
Closing an account doesn't make it go away. A closed account will still show up on your credit report and may be factored into the score.
If you're having trouble paying off your debt - talk to your creditors about your situation. Many of them have temporary hardship programs that will reduce your monthly payments until you can get back on your feet. Remember, "fixing" a credit score is more about fixing errors in your credit history. It's now about following the guidelines above to maintain consistent, good credit history. Raising your score after a poor mark on your report or building credit for the first time will take patience and discipline.
Joy Sherman, Founder, Ms. Motorcars has been in the automotive industry for over 20 years.
After attending Northwood Institute and obtaining certification in Dealership Management, I started working in the dealership delivering vehicles to our customers. I became very familiar with the paperwork involved. Moving between the jobs of Delivery Coordinator to Sales Consultant, Service Consultant and overseeing the Customer Relations Department, taking care of the customer was always in the forefront. With over 20 years of experience, I'm proud to say my customers saw a level of competence and trust which continues today.
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