First Car Guide for First Time Car Buyers

Car Loans and Credit

Getting approved for a car loan means having a dealer or lender check your credit history and credit score to determine your credit worthiness.

If your FICO score is lower than about 680-700, your are considered subprime and may find it difficult to get a loan, or you may have to pay high interest rates. You can get your credit scores from the three major credit agencies at FICO Scores/Reports. You should always know your credit score before you begin shopping for a car and for a loan. Otherwise, you may be charged a high interest rate when you don't deserve it.

Your credit score not only affects your ability to get a loan but many auto insurance companies now base premium rates on customers' credit scores. Studies have shown a direct relationship beween a person's credit score and their propensity to file insurance claims. People with lower scores tend to file more claims. Therefore, these people are charged higher insurance rates than other people with better scores.

Credit scores may also affect your ability to get certain jobs as some companies consider your credit score as an indicator of your ability to handle responsibility.

If you have bad credit, you should begin working on a plan to improve it. It wont' happen overnight. Even a few months of on-time bill payments and no other problems won't have much effect. It takes a year or more to see significant improvement. And the negatives stay as long as seven to ten years. Also make sure you get your detailed reports (FICO Scores/Reports) to check for errors and mistakes. If you find errors, contact the credit agency right away to get it fixed.

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