At Mike White Ford, we know that buying your first new vehicle is an exciting milestone. However, it’s also a major financial transaction and commitment that can seem a little intimidating. As you approach this moment, it is wise to get yourself into a strong financial position to ensure you can get the car you want.
Few people can afford to purchase a new car with cash, so financing some portion of your purchase price is the usual path. And when it comes to financing, few factors are more important than a strong credit score. A high score from credit agencies can unlock better interest rates and more affordable monthly payments on your car loan that can make a significant difference in what you can afford and how easy it will be to repay your loan. Even small improvements in your credit score can make a big difference in the financing process, and our experienced finance team can guide you every step of the way.
Improving your credit score takes time, attention, and consistency, but the rewards are well worth it. Here are some practical, proven tips to help you prepare before applying for an auto loan.
1. Check Your Credit Reports Regularly to Rectify Problems
The first step is to know where you stand. Start by reviewing your credit reports from all three major bureaus: Equifax, Experian, and TransUnion. You’re entitled to one free report per year from each at AnnualCreditReport.com.
Credit scores range from 0 to 850, with 850 being the highest. Your score tells lenders how reliable you are as a loan risk. The main categories are Poor (any score below 580), Fair (580 to 669), Good (670 to 739), Very Good (740 to 799) and Excellent (800 and up). These numbers are based on several factors, and can sometimes be low even if you are reliable, simply because you may not have a lot of credit history.
The reports are not just scores, however. The reports are very detailed, and will contain a lot of information about any debts you have incurred and your payment history. Look carefully at your history, and, if your score seems unreasonably low, look for errors such as incorrect accounts, outdated information, or fraudulent activity. Dispute any mistakes immediately. These errors can unfairly drag down your score, and the credit agencies are generally responsive when it comes to correcting reports. However, be aware that you may have to wait 30-60 days for corrections to appear while the agency verifies the information. That means you may need to wait for an updated and improved score.
2. Pay All Bills on Time
Payment history makes up the largest portion of your credit score. Set up automatic payments or calendar reminders to ensure that every bill, whether credit cards, utilities, rent, or medical payments, is paid on or before the due date. Even one late payment can hurt your score significantly, although it won’t do a great deal of damage if it is clearly an anomaly, such as one barely late payment among years of paying on time.
If you’ve had past late payments, don’t be discouraged; just focus on staying current moving forward. Consistent on-time payments demonstrate reliability to lenders and will help rebuild your score over time.
3. Lower Your Credit Utilization Ratio
Aim to keep your credit card balances below 30% of your available credit limits; however, ideally, you want them under 10% For example, if you have a $3000 credit limit on a credit card, you do not want a balance of more than $900 (30% of $3000), and ideally you want it under $300 (10% of $3000). If your balance is higher, focus on paying down your debt to decrease the ratio and show lenders you’re not overextended.
Be aware that closing old credit cards you don’t use might seem like a good idea, but it can actually lower your score because it increases the credit utilization ratio. In other words, if you are carrying a $1500 balance on a card with a $3000 limit, and a $0 balance on a different card with a $3000 limit (maybe because it has a higher interest rate or does not offer perks), your total utilization ratio is $1500 out of a $6000 limit, or 25%. But if you close the account with the card you don’t use, your utilization ratio is now $1500 out of a $3000 limit, or 50%. Your score will be better if you simply keep the unused card account open.
4. Avoid New Credit Applications
Each time you apply for new credit, it creates what is called a “hard inquiry” that can temporarily lower your score; it signals to credit reporting agencies that you are seeking to borrow more money. Because of the impact to your credit score, limit new applications for credit cards (such as department store or gas cards) or other loans before shopping for a car. If you are interested in arranging your own vehicle financing, such as with your local bank or credit union, ask first whether they need to do a “hard” pull to determine your eligibility. If so, be sure you research their rates and terms to make sure you would use their financing if offered.
Alternatively, when you’re ready to finance your Ford, you can let Mike White Ford’s finance department run pre-approvals to multiple lenders at one time to find the best deal and avoid pulling your credit unnecessarily or repeatedly. In most cases, we can work with a preferred lender such as your banking institution without you having to approach them independently.
5. Build Positive Credit History
One problem for new car buyers is a lack of credit history. Many young people do not have much credit history because they tend not to borrow, or because they have only been paying bills for a few years. If your score is low because your credit file is thin, consider becoming an authorized user on a family member’s well-managed credit card, or look into a secured credit card.
Many credit card companies will help young people establish a credit history with cards “secured” by making a deposit, often $300 or $500 dollars for a limited period. This protects the creditor if the bills are not paid. When you use these cards, the best practice for building a good credit history is to make small purchases with them and pay them off in full each month. If you are diligent, your deposit will be returned to you after six or twelve months, and your “secured” card will become a regular credit card.
Another option to build a credit history is to take out a “credit-builder” loan. This is a short-term loan, usually a lump sum, that is paid back over a fixed period, often 24 months. When researching such loans, however, be careful not to get a loan with an exorbitant interest rate, as it can make repayment difficult and make building your credit history very costly.
6. Monitor Progress and Stay Patient
When you want to buy a new car, your excitement and anticipation can be dampened by having to focus on mundane things like credit scores, but it is foolish to ignore how much a credit score can impact your financial situation.
For example, if you need to borrow $25,000 to purchase a car, getting a loan at 7% over a 60 month repayment period will lead to a payment of $495 per month, and you will pay a total of $4700 in interest over the life of that loan. However, the same loan at 5% will reduce your monthly payment by $23 to $472 per month, lowering the total interest you pay by almost $1400 (to $3300). $1400 is a lot of money to sacrifice for not taking the few months you need to improve your credit score and obtain a better loan.
Steady credit habits deliver results, so track your score monthly through free services or credit monitoring tools. Celebrate small wins, such as paying off a credit card, fixing a reporting error, or boosting your credit score or credit rating. You can also use that time to save more for a higher down payment, which will also help your financial situation.
7. Work with Professionals Who Understand Auto Financing
If you have questions about financing, or would like to find out what Ford can offer you, Mike White Ford’s finance department specializes in helping customers with a wide range of credit situations. We work with multiple lenders and can often find competitive programs even if your score isn’t perfect. We’ll review your current credit profile confidentially, explain exactly what factors are affecting your score, and suggest realistic steps to improve it before finalizing your loan.
Many customers visit us first for a no-obligation credit consultation. Our team can provide personalized advice tailored to your situation and show you real-time examples of how rate improvements translate into monthly savings on popular Ford models. We’ll also let you know if Ford has any special incentives available to you in the form of rebates, offers for designated groups (such as active duty military or first responders), or special financing from Ford for select vehicles.
Let Mike White Ford Help You With a New Ride
Improving your credit now can save you hundreds—or even thousands—over the life of your auto loan, and make it easier for you to get the car you want.
At Mike White Ford, with showrooms in Coeur d’Alene and Sandpoint, Idaho, we believe everyone deserves the opportunity to drive a fun, reliable vehicle, ideal for daily commuting, carpool duty, family trips, off-road recreation, or weekend errands. Our financing process is transparent and supportive, and you can count on us to help you find the best financing options that will work with your budget. Whether you’re aiming for the best possible rate on a new Bronco or exploring certified pre-owned options, our finance experts are committed to finding solutions that work for you.
When you’re ready to take the next step, visit our website to try our free Credit Estimator Tool. It does not involve a hard credit pull and will help you get a better understanding of where you stand and what improvements could mean for your next car purchase. Then stop by one of our showrooms and meet with our friendly staff to discover how we can help you get into the Ford that’s right for you and your family.