The best rates you’ll see advertised online, in newspapers, or elsewhere often require that you have a top credit score. Your score will help determine the interest rate a lender will charge you (or whether you’ll be able to get an auto loan at all).
Your credit standing is especially important with the recent mortgage crisis and associated economic problems, which have made getting a car loan more difficult. Not only do borrowers need higher minimum credit scores, they’re increasingly being asked to produce pay stubs and documents to substantiate their income and other information they provide on a loan application.
A credit score is a three-digit number that’s used by most lenders to assess your credit-worthiness; that is, how likely you are to repay a loan and make payments on time. Although there are several scoring methods, the one most commonly used by lenders is known as a FICO score because it was invented by Fair Isaac, an independent company. FICO scores range from 300 to 850, with the higher scores indicating better credit ratings.
You can find out your credit scores by contacting the three credit reporting bureaus:
Each bureau calculates its own score and charges a separate fee.
If you’re in the market for a car now, knowing your credit score isn’t going to help, since there’s not enough time for you to take the actions necessary to improve it. On the other hand, if you’re not planning on getting a new car for a while, there may be some steps you can take to improve your loan eligibility. For tips, visit www.myfico.com and click on Education.
The three credit bureaus derive your credit score from your credit report, a detailed account of your payment history, as well as your available credit and current debt. As with your credit score, you have a different report from each of the three credit bureaus. If you’ve ever had a bank loan or credit card, information regarding your account activity will appear on your reports.
You can expect to find four categories of information in your credit reports:
Personal information. This includes your name, spouse’s name (if you are married), Social Security number, current and previous addresses, birth date, and current and previous employers. The information comes from past credit applications and depends on how accurately you filled out the forms.
Credit information. Included in this category is information about your accounts with banks, retailers, credit-card issuers, and other lenders. Credit limits as well as loan amounts and balances are detailed, along with past payment patterns.
Public information. This includes bankruptcies, tax liens, monetary judgments, and, in some states, overdue
Credit inquiries. Included here are the names of those who requested and obtained copies of your credit report.
By law, you’re entitled to one free report (which doesn’t include the credit score) from each of the three major credit bureaus every 12 months. To order your report visit www.annualcreditreport.com.
When you get your reports, scrutinize them carefully for errors, because you can challenge mistakes and ask for the credit agencies to fix them. Consumer Reports maintains a Website at www.defendyourdollars.org to help you understand your credit.