Your credit score plays a big role in the financial products that are available to you. If you have a high credit score, you can access low-interest financing and other enticing options. However, a bad credit score doesn’t have to get in the way of your car-buying journey. There are several options available for shoppers with bad credit. You simply need to understand how to navigate these choices to get the best deal possible on your next vehicle.
Check Your Credit Score
Understanding your credit is the first step to evaluating your options for car loans. You can check your credit for free once a year through any of the three major credit reporting agencies – Experian, Equifax, and TransUnion. Many banks and credit card companies can also offer some insights into your credit score, though it’s important to note that your exact score will typically vary from one source to another.
Your credit score is a number between 300 and 850 that tells lenders how reliable you are as a borrower. The higher your credit score, the greater your opportunities for obtaining a competitive low-interest vehicle loan. Bad credit is generally considered any score under 580.
There are several elements that weigh into your credit score, some of which have a greater impact than others:
- Payment History (35%): The most important factor in your credit score is your history of making timely payments. If you’ve made late payments, this will pull your score down significantly.
- Credit Utilization (30%): The second most significant factor impacting your credit score is your credit utilization. This refers to how much of your available credit you have used. It’s best to use no more than 30% of what’s available on your credit cards.
- Age of Accounts (15%): The longer your credit history, the higher your score. Credit reporting agencies consider the age of your oldest card and newest card, as well as the average age for all your credit cards.
- New Credit (10%): Your credit score drops if you have a high number of recent inquiries. This can indicate to lenders that you’re struggling financially and looking for a lot of assistance to keep up with your bills.
- Credit Mix (10%): Your credit score will improve with diversity among your credit accounts. It helps to have several different types of credit such as a mortgage, car loan, student loan, and credit card.
Compare Bad Credit Car Loans
If your credit score is below 580, you may need to consider getting a bad credit car loan that’s tailored to your financial situation. Bad credit car loans are very similar to standard auto loans. The primary difference is that they’re available to shoppers with low credit scores. These loans typically have a higher interest rate.
It’s worthwhile to compare your options for car loans even if you’re shopping with lenders that will approve applicants with bad credit. Car dealerships can be a great place to go for this because they can send your information to different lenders and help you find the best rate.
Work on Boosting Your Credit Score
If you’re uncomfortable with the terms and interest rates available with bad credit car loans, there are several things you can do to potentially increase your credit score and secure more favorable terms. Consider the five elements of your credit score listed above and look for ways to improve your credit report in these areas.
Some ways that you can boost your credit score include:
- Making on-time payments. If you have trouble remembering the due dates for these, set up automatic payments to ensure that your cards are paid on time.
- Paying off your debt. If you’re using more than 30% of your available credit, try aggressively paying down your balances until you can reach this point. Look for ways to trim your expenses temporarily to help with this, such as replacing your morning coffee run with coffee from home, or deciding to cook all your meals at home for a few months.
- Use your older accounts more than your newer ones to keep your longest-standing credit cards active.
- Avoid applying for any other type of credit as you prepare to purchase your car.
- Use Experian Boost to factor timely utility and cell phone payments into your credit score.
- Become an authorized user on the credit card of someone with a high credit score.
Collect Your Down Payment
Your down payment will lower the total that you need to take out as an auto loan. If you’re looking at a higher interest rate, it’s especially important to make the largest down payment possible.
One way to boost your down payment is by trading in your existing vehicle. You can check the trade-in value for your vehicle online for a general idea of how much you can add to your down payment this way. You might also be considering selling your vehicle privately if you have access to another vehicle that you can use while shopping for your next car.
Consider your expenses and budget carefully as you’re preparing to purchase a vehicle so you can free up as much money as possible to finance this purchase and minimize your monthly payments.
Know Where to Buy a Car With Bad Credit
Some dealerships are more accommodating of shoppers with poor credit than others. Take the time to shop around and find the best option for purchasing a quality used car at a competitive price. Research the make and model that you’re interested in as well, so you can recognize a great price when you spot one. Understanding the market for used vehicles and the fair price for these cars will help you spot the best opportunities.
New Jersey State Auto Used Cars offers financing for customers with bad credit, so your financial history doesn’t have to stand in the way of you getting the car that you want. We have an extensive inventory of used cars including options from Nissan, Toyota, Honda, Audi, BMW, and Ford. Start shopping for your next vehicle today. Contact us today!