For many people, applying for an auto loan is the first time they see the effects of their credit history in action. Your credit score and credit report can drive not only your ability to buy a car, but what kind you end up purchasing, too.

Whenever you apply for new credit, the lender will review your credit report and score. Generally, the higher your credit score, the more likely a lender is to offer you the credit you want at a favorable rate and terms. When you’re applying for a car loan, a higher interest rate may make you think twice about how much principal you’re willing to finance. Conversely, if a lender offers you a great rate on your auto loan, you may decide you can afford to spend a little bit more for a vehicle.

The best way to ensure you’re in the driver’s seat when it comes time to apply for an auto loan is to take care of your credit beforehand. These steps can help ensure your credit score is in good driving condition:

• Regularly check your credit report – Monitoring your credit can help you track your progress toward your financial goals, including buying a vehicle. It may also help you detect signs of identity theft, such as new credit lines you didn’t open. If your credit report contains any errors or negative information, you’ll want to know about them and address them before applying for more credit.
• Pay your bills on time – Late or missed payments appear on your credit report and can negatively impact your credit score. On-time payments count in your favor, and are one of the factors credit bureaus consider when calculating your credit score.
• Be aware of your utilization ratio – The ratio of how much credit you have available, compared to how much you’re currently using, is also a factor in credit score calculations. Lenders will consider this information when deciding if you can afford to repay a new loan. Paying down credit card debt can help improve this ratio.
• Avoid incurring new debt – If you know you’ll soon be applying for an auto loan, avoid using credit for everyday purchases. Paying cash will not only help protect your credit score, seeing the money leave your hands may help you make more frugal spending decisions.
• Research lenders before you go shopping – Most dealerships today offer financing, but what they offer may not always be the best loan for you. Before you go car shopping, explore loan options, including online lenders and your own bank. You should compare options for the best loan rate and terms, just as you comparison shop for your new car.

Managing your credit and understanding the impact certain financial moves can have on your credit score is the best way to ensure you’ll be able to afford the vehicle you want when it’s time to buy a new car.


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This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.

Published by permission from ConsumerInfo.com, Inc., an Experian company.   © 2014 ConsumerInfo.com, Inc.  All rights reserved.