Repair your credit score before applying for a car loan

Repair your credit score before applying for a car loan

Consider the following scenario: you have just passed a driving test and decided to contact the nearest car dealer in order to buy your new, shiny four wheels. You arrive at the place to secure a deal only to be told that your credit score is poor. Your application is rejected. You will have to stay off the roads for a while until your debt is improved.

Not only can low credit rating determine unfavourable interest rate on your loan, but also it might prevent you from getting a car altogether. What the potential borrowers don't realise is the necessity of keeping regular checks on the credit rating. A low credit score can cost you substantially more in additional interest payments when compared to what you would pay with good credit. Generally there's a lot more to having a robust credit history than just paying the bills on time.

What if your credit score is low and you can prove perfect credit history? Mistakes can happen, especially for people with similar names, so check for any inaccuracies on your report. If you can point out any errors or information relating to someone else contact your credit agency and get them corrected. They will have to investigate the items in question and send a confirmation of the corrections within 30 days.

Nowadays anyone can approach some of the biggest credit agencies and order a free credit report with the details of their debt history. The information they compile includes current and past addresses, the amount of debt you carry, type of debt and the lenders' name. It can also include debt payment history, how often credit report inquiries are made as well as a history of any bankruptcies. Most of these services are free of charge with some agencies applying a small membership fee when you want an instant credit score online.

Credit score is a number between 0 and 999, with 999 being the best credit score and 0 the worst. This generated number is used by lenders as a general indicator of your creditworthiness: higher your score, the better. Obviously if you discover your credit report is accurate, but your credit score is low you will need to get a better rate by paying down your debt. Quite often borrowers are unable to prove their credit history as they never had a loan or a credit card and remain transparent to credit checks. In this instance the opposite rule applies: not having any recorded debt can have a negative impact on your score. This very often affects young people, immigrants or new residents.

A couple of months have passed. After a strenuous battle with your credit score indicator you decide to pay a second visit to your local car dealer. This time you pass all the checks. It's a sound result on your credit score and a tip top car to drive back home. Happy motoring!

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