How Can Your Credit Drive Your Next Car Purchase

Published on Feb 28, 2014 10:45 am

You’ve decided that it’s time for a new car. You’ve chosen the car based on needs or wants, and have made the decision to go for style, functionality, or both.  You know the amount of passengers you’d like your car to carry and the driving conditions you’ll likely encounter. You know the distance of your commute to work and back.

You might say you’ve done your homework—up to a certain point.  At the dealership, they’ll likely run a credit check to make a lending decision.  This is what’s called a hard inquiry.  And hard inquiries can impact your credit score and remain on your credit report for up to two years.

Your Credit Can Determine the Lending Decision

Your credit score can play a major role in determining the lending decision—and ultimately the type of car you can afford.  This is one of the reason why financial and credit experts place emphasis on how to use your credit the right way, like not maxing out your credit card(s), paying your bills on time, and avoiding new credit card purchases—which can raise your credit utilization rate.  Your credit utilization rate is the ratio between your credit card balances and your credit card limit.  The higher your balances, the more likely your credit score will be affected.

Good credit is more likely to help lock you into a favorable loan rate, while giving you a wider choice of vehicles from which to choose.

Here’s how to keep your credit score in good driving condition:

  • Check Your Credit Report Frequently – Taking time to check your credit report. Not only does regularly monitoring your credit report help you track the progress you make toward reaching your financial goals, it’s also an important step in detecting identity theft. Any unfamiliar information can be a sign of identity theft or fraud. And since your score can affect your loan’s interest rate, it’s important that you address any concerns as quickly as possible.
  • Pay Your Bills on Time – If you’re not in the habit of paying bills on time—get in the habit. If you have a significant amount of debt, try and pay down as much as you can comfortably afford.  Try and pay down the cards with balances closest to their limit.
  • Consider the Upside of Not Cancelling Any Credit Cards – Many people believe that cancelling credit cards will help their credit score. Doing so could actually lower your score because it can reduce your available amount of credit as compared to what you actually owe.
  • Consider Paying with Cash – Paying in cash speaks to the idea that you actually end up spending less money when you can see it leave your hand.  And keeping your credit card utilization rate low can help raise your credit score.
  • Be Mindful of Your Credit Utilization Ratio – You’ll want this number to be as low as possible. Your credit score will fare better the lower your debt is relative to your available credit.

Practicing the above steps should have a possible effect on your credit score over time. The better your credit score, the more likely you’ll get favorable financing terms.

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, Inc., an Experian company.   © 2014, Inc.  All rights reserved.

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