When buying a new or used car, it is an exciting experience. But before you start thinking about the color, make, or model you want to buy, you need to ensure that everything is in good order, and one of the most important components in that is evaluating your credit scores.
What is a good credit score for buying a car?
If you are buying a car 100% cash, then your credit scores will probably never be a topic of discussion. However, if you are like most Americans, you likely cannot afford to buy such a large amount in cash – that’s where your credit scores come into play.
How can I find out my credit scores?
Repeat after me: never pay to see your credit scores! Your credit scores as reported by the major credit reporting agencies are readily available: just type “free credit scores” into your search engine. Many credit card companies also display credit scores to their members as “benefits” of being cardholders.
What should I do if my credit scores are low?
It depends on the options available to you. If you urgently need a new car now (is that really the case?), you will have to settle for a higher interest rate. However, if you have the option, it is a very smart idea to use public transportation, carpool, walk, ride a bike, or even borrow a car from a friend instead of buying a new car with less-than-great credit scores. Free credit reports often offer a list of some reasons that explain why your credit scores are low. If your credit scores are low due to high balances on your credit cards, pay down your balances for a few months before even thinking about going to a dealership to look at cars. If your credit scores are low for reasons that are harder to fix in the short term, you should consider talking to a certified financial planner (someone who has a fiduciary duty to put your needs before their profit) and discuss your options.
What can I do after signing the loan with a high-interest rate?
The most important thing you can do is make timely payments for the next 6 to 12 months. You should also focus on improving your credit scores. Do not open new credit cards or apply for other loans: these acts will be red flags on your credit report. After 6 to 12 months, you should look into refinancing your car loan.
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Sources:
Experian. “Automotive Industry Insights: Finance Market Report,” Pages 3, 22.
Edmunds. “Buying a New Car vs. Buying a Used Car.”
Source: https://www.thebalancemoney.com/what-is-a-good-credit-score-to-buy-a-car-4158134
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