Boost Your Credit Score And Land A Better Car By New Year

November 15th, 2019 by

A credit score is improving on a dial.

Buying just about anything with a larger ticket item these days is often tied directly to your credit score. A good credit score will help improve your interest rates and ensure you’re approved for a mortgage, car loan, payment plan, or just about anything else of interest. However, a poor credit score is going to lead to bad credit car loans or even a rejection of the loan itself. If you’re interested in buying a car but have bad credit, don’t fret. You can boost your credit score with just a few tips and suggestions. This way, you’ll be on track for better credit and a better car by New Year.

Get Your Credit Score

You need to know what’s on your credit score and what is holding you back. There are several free credit score services out there you can use. And don’t worry, checking your credit score will not affect it. Services like Experian and Nerdwallet offer excellent ways to both monitor your credit score and to see what is on it. These services can even point out changes in your score and how many points each improvement will lead to.

A person is checking their credit history on their phone to see if they need to apply for bad credit car loans in Indianapolis, IN.

Fix Mistakes

Go over the credit report you received. Are there any mistakes? If there are mistakes you need to have these taken care of right away. A single mistake can cause all kinds of problems with your credit score. Say, for example, you had a gym membership that you stopped using. You canceled your gym membership, but, for whatever reason, the gym has reported you as no longer paying membership you signed up for. This might show up on your report, even though it shouldn’t. When this happens, and you identify something wrong, you’ll want to contact the gym and have them make the correction. You’ll also want to have them contact the credit reporting bureaus to ensure it is removed.

Now, you can’t just contact the company or individual responsible for the incorrect information and assume it will all go away. If, after a month or so, the information is still on the credit score (which is why signing up for a weekly credit report email is helpful as you can stay up to date on all of this) you’ll want to call them back and make sure they report the correction. Sometimes it requires you to make continued phone calls to fix the problem. Hopefully, this isn’t the case, but if it is, stay on them about making the changes.

Come To Date On Your Loans

Do you have loans that are late or loans you have fallen behind on? This is a major impact on your credit score. It might help to schedule auto-pays on the loans you can; in this way, you’ll always pay your loan on time. Additionally, if you have loans that are past due, you need to make payments on this to get them current. Taking a past due loan and turning it into a current loan on your credit score will instantly cause it to jump.

Do You Pay Your Utilities On Time? If So, Take Advantage

Paying your cell phone, your Internet, heating, and other basic bills are often not reported on your credit score. Now, this might be a good thing or a bad thing. If you’ve missed a few payments or have fallen behind from time to time, it’s good. However, if you’re on time with these payments, wouldn’t it be nice for it to be considered on your credit score? You can sign up with a service through several credit boosting agencies (like Experian) and have it included in your credit score. It may only increase your credit score by a few points, but when it comes to landing a quality car loan, every few points can help. Of course, if your behind on some payments or you’ve been late in the past few months, it might be less than desirable and end up hurting your credit score. So consider your payment history with these services before having it added to your credit.

Pay Down Your Debt

You want to limit what you’re spending money on and instead take the money you spend and put it on debt you currently have. Your credit utilization ratio is a major aspect of your credit score.

What is a credit utilization ratio? It is the percentage of possible credit you have that is used up by current debt. Say, for example, all of your credit card limits added together equals $20,000. And then, let’s say you have $15,000 used up (so you have just $5,000 available). In this case, you have a utilization ratio of 75%.

Ideally, you’ll have around a 30 percent or less ratio. Now, this might not be something you can reach by the end of the year. If you’re hovering at 80 or 90 percent, you probably can’t pay it down to 30. However, by staying on time with the other payments and avoiding late fees, you’ll instantly save some money. With that money you save, put it toward lowering your credit utilization ratio.

Even going from 90 percent utilization to 75 or 65 percent is beneficial. It’s not right where credit services want it to be, but every little bit helps here.

A close up of someone cutting their credit card is shown.

Never Close Out Credit Cards

Do you have a credit card that you’ve finally paid off? It feels pretty good, doesn’t it? Well, don’t make the mistake of going and closing out and canceling the card. This is one of the worst things you can do for your credit.

Why? Because let’s say you just paid off a $5,000 credit card and you want nothing to do with it. Added up with your other credit cards, you had a total of $20,000 potentially available credit and, now that you’ve paid that card off, you only have $10,000 used up on the other cards (which gives you a 50% ratio). However, if you cancel that card, that available credit goes away. That means months of on-time payments will vanish off your report.

It also lowers your available credit threshold. So, in this example, you’ll now have used up $10,000 of the $15,000, which increases your utilization ratio to about 67%. All because you canceled that credit card. So don’t cancel it ever. Keep it open and active (use it to pay for gas once a month and pay it off fully). This will help with your credit score.

Boost Your Credit Score

Boosting your credit score will take a few months. Not only does this give you time to pay down certain debts and to become current with a handful of past-due debts, but also it gives your creditors time to report the updated information to the credit score services. This way, by the end of the year, you’ll have a higher score and will be able to afford a better car loan with an improved interest rate. This alone will help you save potentially hundreds, if not thousands of dollars over the course of your loan. You will need to potentially adjust some of your spending habits in order to make these improvements, yet in the long run, it will substantially help with your ability to afford new purchases and to qualify for better interest loans (and more loans in general).