Car shopping can be a daunting task for many people. There are a lot of options to go through from going to a new car dealership, buying a used car off of Craigslist, or even trying out one of those new smartphone apps that can deliver a car to you. Regardless of your method of obtaining new wheels, there are three major considerations: how much money you have to put down, the final cost of the car (remember fees and options), and how to fill in any gap between the two. Of course, the easiest way to purchase a new car is to pay in full right away, but the vast majority of car shoppers and prospective buyers do not have the immediate funds to buy a brand new car, which may incur a five-digit dent in a bank account. That means borrowing money from either a lender or bank to get a new car.
A good way to save money is to buy from a private seller, either from a friend or stranger, but that can lead to a host of mechanical problems with no way to get a warranty issued, a return or refund, or even leave a bad Yelp review. A trusted dealership may be one of the safest options out there to buy a used or new car. But one thing must be kept in mind: Credit Score. A credit score is the accumulation of credit history, risk assessment, and various other factors that you can read more about here. A credit score ranges from 300 to 850, higher being better. Good credit will allow dealerships to find a good lender at low-interest rates while a bad score will lead to much higher interest rates. Some APR (Annual Percentage Rates) can be so ridiculously high that the customer may end up paying more in interest than the car’s actual value. What are ways to avoid this? Here are several things to consider when going car hunting and looking for the best deals.
Whenever a dealership or lender tries to get an insight into your credit history and details, they will pull your credit report, which often means leaving an inquiry, a small slap to your credit score (bringing it down between 1-5 points). Not only that, most dealerships will result in multiple inquiries because the salesman is trying to find any lender that is willing to loan money to the prospective car buyer. What this means is that the more time and effort a customer goes into buying a car and securing a loan, the more they are likely to lower their score; i.e., shopping at multiple dealerships, looking at different cars, and trying to get quotes from various dealerships. These one or two slaps to the old credit score will become gut punches to credit history if enough of them accumulate. Checking a credit report after car shopping will often reveal a long list of inquiries–all of which affect the score by 1 to 5 points each. These inquiries will last for two years and bring down your overall score during that time. Not only that, this long list of inquiries may include lenders the customer may have never signed up with in the first place. These auto lender inquiries might seem unfamiliar, appearing on your credit report with names such as MECHANICS, ALLY FINANCIAL, COAF, WFDS, and XX-AF (anything AF usually means Auto Financial or Auto Finance). This can become irritating as simply the act of checking credit through a dealership will lower the overall score, possibly causing a downward spiral that will lead to a less satisfactory loan. This can all be avoided by pulling your credit report from a reputable Credit Monitoring Site (CMS) such as Smart Credit or Identity IQ. Although these services may cost a little, they are accurate and will not result in an inquiry on your credit history. Of course, there are also free alternatives as well, such as Credit Karma or even asking the credit bureaus to send a free report. Each credit bureau is required by law to provide at least one free credit report every year upon request, so make sure to use it.
Another way to avoid getting inquiries from dealerships and salespeople is to find a lender before going to the car lot. Anyone who has a checking account can easily go to their established bank or credit union to find a car loan and get financed. Most banks and credit unions will be more than happy to provide this to their customers and clients. There’s no real downside to this method of getting a loan besides the quirks of the bank or loan itself. Oftentimes, the bank will not allow purchases from a private seller or even from unreputable used car dealerships. By going through the bank, you can avoid putting dents in your credit history with incessant and unnecessary inquiries. There’s also the convenience factor when going to the bank, such as all payments for the loans appearing under a single same name and account that you recognize and trust. After all, it can be a hassle to make payments to various sources and keep track of multiple accounts. Having it all consolidated under one name or account will make personal finances less of a headache. Always check with your bank or credit union to see if they can help before you even step foot in a dealership.
When a potential lender pulls your credit report before approving you for a loan, they will be able to see your whole credit history. This means any delinquent, derogatory, or collection accounts that appear on your credit report will be available for all lenders to see and will factor into their decision. A better credit score will lead to a lower interest rate, lower APR, and an overall better deal. Handing out car loans can be a risky business, and creditors want to know that they are giving their money to those who won’t disappear and become delinquent or someone who will make a lot of late payments. Trust is the key factor here, and credit companies use your credit report as a quick way to look at your trustworthiness and financial liability. There are many ways to improve your credit score; however, all of them involve time and a lot of effort. The easiest way to get a beneficial boost to your score is to have a credit card with no late payments that don’t utilize more than 30% of the card’s limit. Another way is to have a responsible family member or friend that is trustworthy add you to his or her credit card as an authorized user; thus adding their good revolving credit account history to your own. Keeping up with your credit will give you a definite edge when it comes to finding a good car loan with a reasonable interest rate from a reputable lender. By removing inquiries or dubious collections from your credit history, you can increase the health of your credit history and improve your credit score. This is where it can get tricky when it comes to improving your credit; however, there are accredited credit repair and consultation services that will be more than happy to help with these situations.
Fixing credit, especially from mistakes in the distant past that can haunt the customer forever, can be a chore, a hassle, and an overwhelming headache to do. Anyone can dispute, contest, and try to fix his or her credit history, but it can be exhausting and time-consuming. Even if you have a good credit history and got a great deal on a car loan, all those inquiries will stick around like a bad house guest, consuming your credit score. Inquiries can last up to two years and each one will lower your credit score Hiring a reputable credit repair company to help fix your credit can be a better, viable option for those who don’t want to waste time or be stressed over disputing and talking to credit bureaus. At Fix Your Credit Consulting, we can help by starting with a free consultation, where we will provide insight on the problem areas in your credit history and provide sound advice on how to improve your credit for the future. Call us at (877) 212-2450 for a free consultation from one of our professionals.
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