How to Boost Credit Score to Get Lower Car Payments

One of the biggest challenges for a person who has low income is getting a low car payment. The individual may have a credit score that isn't in the gutter, but the top lenders still won't touch him. The subprime lenders end up taking over and charging that person astronomical monthly payments and interest rates on his car. There is a way for a person who has low income to get a better car payment, however. The way to do that is by increasing the credit score before applying for an auto loan. The increased credit score will open up some possibilities. Here's some information about credit scores, how they work and how one can maneuver them.

Credit Scores and Auto Loans

A person's credit score is going to directly affect the type of car deal he gets and the amount of money he'll have to pay each month. A person who has a 750 credit score is going to have access to low-interest rates and just about any lender that he wants to use. A person wit has a 620 credit score will have limited providers willing to take the risk, and he will have to pay more interest than someone who's in the awesome bracket. A person who's living on a strict budget may not be able to afford the car note even though he may be working and appear to have enough funds. The difference in payments may be $100-$200 dollars a month. The best way to make the situation more suitable is for the debtor to take steps to catapult his credit score to the next level.

Factors That Affect Credit Scores

The credit score is a complex calculation that has five main affecting factors. These are:

  • Payment History- 35 Percent
  • Balances or Amount Owed- 30 Percent
  • New Accounts- 10 Percent
  • Account Age- 15 Percent
  • Credit Mix- 10 Percent

Balance owed and payment history are two elements that affect the score the most. Even if a person has a credit card that he pays every month, he can still lose a huge chunk of his score by maxing out that credit card or utilizing more than 30 percent. Therefore, a smart debtor has to keep an eye on things and only use credit cards if it is completely necessary.

Credit mix is just the type of accounts that one has. Creditors like to see that an individual can handle installment loans, credit cards and other types of credit, as well.

New accounts can affect a person's credit report negatively for a short while, but then they will even out as the accounts get older and start receiving payments.

Credit inquiries are not listed in the credit score pie, but they, too, can affect a person's score negatively. Not only do they stay on the person's credit report for two years, but they can cause the score to drop one to four points each time the person allows a creditor to pull the report. Debtors who want to raise their score must refrain from conducting a lot of inquiries while they are in the process of restoring their credit.

How to Raise Your Credit Score

The first step to improving a credit score is to order a copy of the credit report. Every debtor can receive a free report from each of the major bureaus once every year. After the individual receives the report, he can take the time to dispute each negative or unrecognized item that's in the report. The bureaus will investigate the disputes, and then they will remove items that do not fit.

Getting a New Car

Once the individual gets the score up to a reasonable number, he can then start requesting auto loans with fair monthly payments. He can use a payment calculator to figure his likely payments, and then he can work with those. He'll have a variety of options once he raises his score up to a reasonable level.

Those are just a few tips for getting out of the rut of not being able to get a fair car payment. Things can change for the better with a little bit of financial TLC.

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