Build Your Credit Score With These 4 Tips

Do you know what your credit score is, and why this is an important number to know? When asked in a survey, nearly 3 in 10 adults admit to not knowing their credit score. Your score is important to know because it gives you and lenders an understanding of your overall financial picture. When you apply for a loan your credit score will determine if you receive a higher or lower interest rate, which could make the difference between being able to afford your monthly car payment or not being able to.

1. Check Your Credit Score

First things first, check your credit score to know where you stand. Your score can fluctuate day-by-day so never be too alarmed if you see your score drop a few points. A lot of factors go into determining your score, and some of them are out of your control. When looking into your credit score don’t get tricked into paying, instead use a free site such as Credit Karma, Credit Sesame, or one of these.

Now that you know your score, where do you fall in this graph?

 

Graph provided by Experian

If your score is above 670 you can consider yourself a lower risk borrower, pat yourself on the back! If you fall below 670 you likely won’t be denied a loan, but you are going to be offered much higher interest rates than someone with a score above 670. Keep reading to learn a few ways you can raise your credit score.

2. Don’t Miss A Payment

If you came across this blog in a search to figure out if you can qualify for an auto loan based on your low credit score, all is not lost. Even though you may end up paying a higher interest rate, making on-time payments is a great way to build up your credit score. The average length of an auto loan in the U.S. is now 69.5 months, up nearly four full months since 2013, and all of the regular payments you make during that time definitely pay off in the long run.

If you are approved for an auto loan at an interest rate that is less than desirable you aren’t stuck with it. After you make on-time payments for a year or two and prove that you are a lower risk lender, you can try to refinance your loan. You can refinance either through the same institution that originally borrowed to you in the first place, or through a new lender.

3. Reduce The Amount of Debt You Owe

 

Although it can be daunting, getting out of any amount of debt isn’t impossible, but it does take time and dedication. Not only will reducing your debt raise your credit score, it will also free up a lot of unnecessary stress in your life. The first step to paying off debt is to stop using your credit cards, and only use your debit card or cash for purchases. If you can’t afford to pay off your credit card in full each month, you are spending too much. These nine steps will help you to manage your debt - no matter the size.

4. Rate Shop In A Small Window of Time

When you start shopping around for an auto loan, set aside one or two weeks dedicated to rate shopping and make your decision within that same time frame. The reason being, is that any time you decide to apply for credit you are actually creating a small ding in your credit score, called a hard credit inquiry, that lasts for up to two years. If the FICO score finds some inquiries that are older than 30 days, it will count those made within a typical shopping period as just one inquiry.

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