Credit Score and You:  How Does it Impact the Vehicle Purchasing Process?

If you're thinking about buying or leasing a new vehicle, financing has probably crossed your mind, and, in that case, you have probably given some thought to your credit score.  Our credit score is not something that most of us think about daily, but it does impact some of the biggest areas of our life.  Credit scores not only impact your purchases of an automobile or a home, they also could affect whether you are able to get service from a utility company and impact you with an insurance company.  

For this reason, it pays to be, not only vigilant about your credit, but educated about how your credit score is determined and what kinds of factors go into determining it.  Larry Hillis Chrysler Dodge Jeep RAM FIAT, located at 3211 North Westwood Blvd, in Poplar Bluff, MO, believes that empowering our customers with that knowledge is very worthwhile.

Timely Bill Payment History

One of the most important things someone can do to build or protect their credit score is make timely payments on their bills.  Your payment history can determine up to 35 percent of your credit score.  If you have a serious payment issue, like a bankruptcy, collection account, or a tax lien, it can plummet your credit score and make it extremely difficult to get approved for any type of loan or credit, including an auto loan or lease agreement.

If you have had these types of issues in the past, you can rebuild your credit by settling with your debtors and making timely payments, but that process can be time consuming and costlier than just making the timely payments in the first place.

Debt Level

Your debt level is also extremely important in determining your credit score.  You may always make your minimum payment on time, but if you are carrying high balances in relation to the limit on your credit cards, your score could still be impacted.

It is often suggested that you should never carry more than 30 percent of your available limit on your credit card.  This means that if you have a card with a $1000 limit, you should never charge more than $300.  This will help keep your score stable.  This is extremely important when it comes to a bank determining whether to approve you for an auto loan or lease agreement.  Many banks look at something called debt-to-income ratio, and if your debts are too high compared to your income, they may deny you, even if you make your payments on time.

The Age of Your Accounts

Another factor in determining your credit score is how long you have had your accounts open.  The older the account, the better it is for your credit score because it displays that you have had experience when it comes to managing credit.  This also important, especially if you are attempting to get your first auto loan or lease approval, or attempting to get an approval after a period of poor credit, as it shows a lending institution a solid history of making good decisions.

For these reasons, it is often suggested that you don't close existing accounts with a good history or open too many new ones at once.

Types of Credit

It is advantageous to have a blend of both revolving accounts and installment loans on your report.  It shows banks that you have successfully managed different types of credit.  Following this logic, it will be easier to get your second auto loan once you have successfully paid of your first auto loan, provided there is nothing derogatory on your credit report.  Although it may not impact your score as much as some other factors, it is good to balance the types of credit you have on your report.

Credit Inquiries

Keeping the amount of companies looking at your credit down to a minimum is a good way to help preserve your score.  Your credit score will be impacted even more if there are several inquiries in a short time span.  If you are thinking of applying for an auto loan or entering into a lease agreement, it might be best to not apply for several credit cards around the same time to keep your credit score at its highest level.

For More Information

Larry Hillis Chrysler Dodge Jeep RAM FIAT, in Poplar Bluff, MO, has an experienced finance team ready to answer any questions you have about credit and the vehicle purchasing process.  If you would like us to discuss your vehicle purchasing or leasing options, please feel free to complete our pre-approval form and someone from our finance team will reach out to you.