Maximizing your Pre-Purchase Credit

Don't Let Them Tell You There are Problems With Your Credit

Before even glancing in the direction of a loan application, you should already know everything there is about your current credit report. Far too often, people rely on thinking they have good credit and just fill out a loan application only to find that there are...issues...with their credit that they were completely unaware of. Perhaps some errant information has popped up on your credit report, or perhaps you, like thousands of other Americans, will find out through an application that your identity has been stolen and your credit trashed.

Get Your Free Credit Report

Since federal law determines that everyone is entitled to one free copy of their credit report every year, there is no excuse for not checking yours before you apply for an auto loan. Simply write to the three major credit reporting bureaus, Experian, Equifax and TransUnion, and tell them you would like to have your free credit report. You can even request it online, but be careful when doing this, there are a whole host of services out there that will offer you a "free credit report" when you sign up for some service of theirs. It may be free of charge to start with, but usually after 30 days, you will end up having to pay a yearly fee for their service.

Note that your free credit report does not include your credit score, which is a measurement of your creditworthiness across all three credit bureaus, and is the primary item that lenders look at when deciding whether to offer you a loan.

Clean up Any Messes You Find

If there are late payments listed on your credit report, there's nothing much you can do about them, however, if you find an account open that shouldn't be there, write to the responsible agency and request that it be closed or removed entirely. If you find any collections on your account - bills that went unpaid and are now with a service trying to collect the money, you should definitely call them and work with them to satisfy that obligation as quickly as possible. Even one open collections account on your credit will significantly impact your ability to get a good rate on a loan and it may even keep you from getting a loan offer at all.

Pay down credit cards

If you have credit cards that are maxed out, you should pay down the balance to at least 50% before applying for your auto loan. This will improve your debt to income ratio and increase the chances that you will get a good rate on your loan.

Come up with a Large Down Payment

Having a large down payment for your vehicle will have two effects on your potential loan. 1. Lenders like to see you taking the initiative on purchasing your vehicle, and that you have the grit to save up that kind of money (at least 20% if you can). This shows them that you are not trying to foist all of the cost and risk of this loan off on them since you are also putting your own cash up. 2. The bigger your down payment, the smaller your loan, and the less likely you are to end up upside down in your auto's value once it begins to depreciate.

Besides maximizing your pre-purchase credit, you should also worry about auto insurance coverage before buying a new car. Getting the right auto insurance can change your entire financial future depending on different things.