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.
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.
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.
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:
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.
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.
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.
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.