Credit Tips: 10 Simple Ways to Improve Your Credit Score & Be More Confident Financing Your Next Vehicle

Your credit score represents one of the most important things to consider when you’re thinking of financing a new vehicle, especially when it isn’t quite as strong as it could be. More and more people are finding themselves in the same boat, with poor credit scores stopping them from receiving the best loans and interest rates. Fortunately, there are a number of simple ways to help give your credit score a boost.

We’re here to help set you up for success on your car-buying journey, and we can answer any questions you have and advise you on which options best fit your budget if you’re confused. If you have a low credit score or no credit at all but need a vehicle, we can still help with financing, so don’t feel hopeless if you need a bit of help in that area. But for buyers who are preparing ahead of time or just looking for tips to bolster their credit for a better option on buying day, these 10 tips will help:

#1 – Get to Know Your Credit Report

Your credit score is simply a number derived from your overall credit report. These are easy to read and easily available, letting you understand your Debt-to-Income ratio and Payments-to-Income ratio.

Make sure to review your credit score regularly, especially when you’re making a major purchase. The more you know, the easier it will be to improve. An understanding of your credit score and how it is calculated will help prepare you to get approved for an auto loan by identifying specific areas where you can improve your standing and ensuring all your information is accurate.

#2 – Understand Your Credit Score

Your credit score essentially represents how risky you are to lend to. Request a score when you ask for your credit report, and you’ll be informed of exactly what it means and which part of the report is negatively affecting it. When you start the financing process, we do what’s called a “soft pull” on your credit score, which does not affect your score itself; it just allows the credit agency to share your score with us so we can calculate how much you’ll be approved for.

#3 – Be Consistent With Identification for Credit Applications

Make sure all your accounts are matched to the correct report and reduce the likelihood of an incomplete report by using the same ID for each application. This makes it easier to get approved for your auto loan when the time comes, because the lender will be able to see all the relevant information. This also ensures that you’ll get a loan with a payment plan you can afford and helps you avoid getting in over your head by getting a car you can’t afford.

#4 – Create a Budget and Stick to It

Good credit can let you take out larger payments, but it isn’t there to let you live beyond your means—doing that will catch up with you in a big way. We hate to see it happen, but it’s a common issue our friends and neighbors face.

A good rule of thumb for any purchase is if you can’t afford it, don’t buy it on credit. This not only builds good habits but also ensures financial freedom and stability when you want or need to make larger purchases, such as your next vehicle. Balancing out that kind of purchase is exactly what credit was designed for.

#5 – Find the Right Level of Credit

A credit history is meant to show that you’re reliable, so make sure you have a few active accounts. At the same time, too many credit cards will be a temptation to spend more, and won’t help your score. Having the right amount of credit for your lifestyle allows you to live comfortably within your means and keep up with paying it off each month. This will show lenders that you are responsible with your money, making them more willing to approve larger amounts for the vehicle you want.

#6 – Pay On Time and Pay It Off

Nothing is worse than seeing your credit score drop because you didn’t make payments on time. If you were late once, it implies that you’ll be unable to pay future debts. If things get serious, contact your lender to see if you can set up a different payment schedule.

Our best advice is to set an event or task in your calendar that works for you and your budget. Whether it’s the first of the month or when payday hits, you’ll be reminded to pay on time, every time. Make sure to set it to remind you at a good time that you are not usually busy, and pay it immediately when the reminder comes up. Don’t set the reminder for 6 AM if you know you’ll snooze it to fall back asleep, or if you’re usually on your way to work at that time. You’ll likely forget unless you have another reminder in place.

#7 – Combine Credit Types

Installment loans, student loans, and car loans are a great way to build credit, but try combining them with a revolving account, like a credit card. You have more control over these, so they help demonstrate responsibility.

“Thin-file” buyers are people who don’t have a very long credit history and are therefore riskier to auto lenders. A borrower might have a 700 credit score from one credit card, but because they lack a “thick” credit history (such as a previous car loan), banks will still treat them as high risk.

#8 – Minimize Credit Card Balances

Keeping your credit card balance near its limit and paying only the minimum each month will make you appear to be a higher credit risk. Keep your balances low to demonstrate that you aren’t the sort of person who takes on too much debt. Paying just the minimum every month is a really quick way to rack up debt and lower your credit score.

The minimum payment is set to cover mostly the interest and a very small fraction of the principal that you owe. This sets you up to be paying that line of credit back for a long time and to pay a lot of money in interest to the bank, credit union, or business that issued the credit card. This is how they make money.

Paying off your credit card balance every month or otherwise keeping it low not only shows the lenders that you’ll keep up with your car payments, but it also allows you to avoid overpaying on the money you owe because of interest rates. This makes payments manageable for you and shows auto lenders that you’re an ideal borrower.

#9 – Think Before Closing Any Accounts

Closing an account can increase your utilization rate, which will negatively affect your credit score. Try to eliminate a few cards with high interest rates or fees only if you have enough available credit. Eliminating high-interest-rate accounts will make your monthly payments more manageable. However, read the fine print for your credit card account to ensure you know the effects. Some accounts won’t cost you anything to keep open as long as you pay them off every month, or pay them down to $0 and only use them for small purchases.

#10 – Open New Credit Accounts Only When Necessary

Don’t be tempted to open a new credit account just because it’s available. This may indicate that you’ve shouldered new debt that isn’t yet on your credit report, or that you’re trying to live off borrowed money. There are options if you are having trouble managing your credit accounts.

If you have an account with a high interest rate that you are barely keeping up with minimum payments for, our best advice is to explore your options for a personal loan. Personal loans can help pay off your credit card balance quickly and set you up with a much lower interest rate, as well as give you a minimum payment every month that will actually help you pay off what you owe in a reasonable amount of time, so it’s not hanging over you, stressing you out, and making your credit score drop.

For example, we recently looked at the case of an individual with a credit account that had an interest rate of 24.4%. That’s high! They had a balance of thousands of dollars, and the minimum payment barely covered the interest, which meant they wouldn’t pay the card off for a long time and would end up paying thousands of dollars in interest alone. The best way to attack this situation was for them to take out a personal loan from a reputable lender at a much lower interest rate; they ended up finding one with an interest rate of 6.9%. It was incredible! For about the same monthly minimum payment, they actually began paying off their debt and got their credit score back to a level that let them get the car loan they needed!

We Care About Your Bottom Line

We want you to feel on top of the world when you get your next vehicle. The confidence to buy comes from consistent budgeting and credit management. When it comes right down to it, our best advice is to keep a few credit cards with low interest rates so your lines of credit don’t get out of hand and you can keep up with paying them off every month. A good rule is that when you make a purchase with a credit card, pay it off within the month. If it’s a larger purchase, set up a plan of attack to aggressively reduce the amount you owe to zero as soon as you can. Set a budget and keep it so you don’t live beyond your means.

Credit cards can make people uneasy, and they do come with some real risks, but we are right beside you with experts to help you boost your credit score so that you can finance a car confidently. This means you get the vehicle you need, without stressing about paying for it. Visit us today or give us a call if you have questions or want some extra advice about how to look good to potential lenders. We’re here to help!