Applying for a car loan doesn’t have to be complicated.

Borrowers with A+ credit ratings can walk in anywhere and get the lowest car loan rates, so it makes sense to keep your credit in tip-top shape. But life happens. Parents need long-term care, kids need braces, bills pile up, and maybe you miss a credit card payment or two. If this is your story, you’re in good company. Millions of Americans carry a balance on their credit cards from month-to-month and could use a credit makeover.

What do you do if you’re recovering from a credit score that’s less-than-stellar? Fortunately, there are several proactive steps you can take to manage your money and clean up your credit before you apply for a car loan.

The fact is, the distance between bad credit and fair credit isn’t that great in real life, but the two scores can look vastly different on paper. While you may not be able to go from a D credit rating to an A credit rating by the time you need to apply for an auto loan, you can do enough to lower your interest rate significantly and save yourself money.

Take the First Step

Surprisingly, many would-be borrowers are worried about their credit without knowing what their FICO score is or what’s actually on their credit report. When it comes to credit, what you don’t know can definitely hurt you. Instead of burying your head in the sand and hoping your financial situation will improve on its own, tackle budgeting and credit repair head on.

If you’re hoping to apply for car loan financing, visit AnnualCreditReport.com to request a free copy of your full credit report before you do anything else. Make sure that you request a report from all three credit reporting agencies: Experian, TransUnion, and Equifax. Once you have your reports in hand, take the following actions.

  • Check for errors on your credit report.

    People make mistakes, even big banks and credit card companies. A significant error on your credit report can cost you up to 25 points on your credit score. That’s huge! Look for debts that have been paid but are listed as still in collection, accounts that don’t belong to you, or loan inquiries that you didn’t make. You will need to request a correction with each reporting agency that shows the error. It’s a hassle, but it’s worth it to save hundreds on your car loan. For more information about scrubbing your report free of costly errors, check out this helpful Forbes article.

  • Check for incorrectly reported credit limits.

    Other than your payment history, the credit reporting item that most drastically influences your overall score is your percentage of credit used, also known as your credit utilization ratio. In other words, if you have three credit cards with a total credit limit of $5000 and you regularly carry a balance of $4000, your credit score will take a hit since you’re using 80% of your available credit. A good rule of thumb is to try to use 30% of your available credit or less. Of course, you can get to this percentage by lowering your balance, but you can also get there by raising your limit. If your credit card company recently rewarded you with a higher limit, chances are they haven’t mentioned it to the reporting agencies yet. Make sure that your credit limits are current on your credit report

  • Call creditors to negotiate.

    Maybe there are no errors on your credit report, just regrets. You can still clean up your credit substantially without losing your shirt. Contact collection agencies and ask to pay a reduced balance in full in exchange for a “paid as agreed” on your credit report. Some agencies may be willing to erase the record of the collection action altogether. Just be sure to get the agreement in writing before you pay. You can also ask creditors for a goodwill adjustment. Suppose you’ve been a great customer, but you missed a few payments during a period of unemployment. Many companies are willing to erase minor mistakes like this in light of your previous good history and current good standing.

Focus On Payment History If You Have Six Months Or More Before You Need A Car Loan

There are many steps you can take to improve your credit quickly, but the most important piece of your credit profile builds up over time. Your payment history accounts for a staggering 35% of your FICO score! And it’s just that, a history. If you plan to secure car loan financing in the next year, now is the time to start paying all of your bills on time every month, no matter where else you have to skimp and save. A few months of steady payment history can raise your score considerably, but it takes a while to show up on your credit report.

While you’re at it, we recommend paying your credit card bills twice a month: a half payment right before the statement closing date and a half payment right before the due date. While you’re still paying the same amount each month, splitting your payment into two parts makes it look like you’re using less of your available credit.

Focus On Your Credit Utilization Ratio If You Need A Car Loan Fast

If you are planning to apply for an auto loan in six months or less, there are still a few moves you can make to raise your FICO score:

  • Get a new credit card.

    We know it sounds counter-intuitive, but one of the fastest, easiest ways to raise your credit score is to open a new credit account. A new credit card will increase your overall credit availability and decrease your credit utilization ratio. Charge a small amount to this new card each month and pay it off in two weeks to build your payment history as well. If you don’t qualify for a new credit card, look into a secured card.

  • Ask your current credit card companies to raise your limit.

    Have you been paying your credit card bills on time? Has your credit recently improved or has your income gone up? If so, you may be eligible for a larger credit line. Just be sure you don’t increase your spending to match your new credit limit, or this move could backfire.

  • Pay down your credit cards.

    Do you have one or more cards that are almost maxed out every month? Start doing whatever you can to lower your balance. Sell off stuff you’re not using, cut subscriptions, skip lattes, take on a side gig, babysit your neighbor’s kids in the afternoon. Paying even $50 extra each month will improve your credit.

  • Keep your current cards open.

    You’ve finally paid off that credit card you ran up in college and want to make sure you never get yourself into that kind of debt again. Close it immediately, right? Not so fast. Closing an older credit card is actually one of the worst things you can do when it comes to your FICO score since it decreases your total available credit and also makes you look like a new borrower on paper. Keep that card active by using it for a small recurring expense that you’re already paying every month, such as a streaming video subscription.

Essentially, anything you can do to lower your balance and raise your credit limits will result in a stronger FICO score, and you’ll see the benefits quickly. Most of these actions will begin to show up on your credit report in 30 to 90 days.

No matter what your credit history, you should always feel welcome to talk to us about your long-term financial goals as well as your short-term financial needs. We offer the best auto loan rates currently available at every credit level, so contact us to apply for a car loan. We are behind you every step of the way.