Interest rates for auto loans are starting to sky rocket and you might be asking yourself, “Is now the time to refinance?”. I asked myself the same thing recently and I started reaching out to lenders. But, the interest rates I was getting between each lender had a ton of variance. Why were they so different? Here’s how you can refinance or purchase a car with an auto loan and make SURE you’re getting a great rate.
There are 3 major credit bureaus that have your credit report — Experian, Equifax, and TransUnion. Each of them score a little differently, but they’re very similar. You are entitled to a free copy of your credit report from each of those bureaus every 12 months. There are also plenty of websites that offer free access to your credit reports as well. Even your online bank or credit card company can provide access to your score — our favorite is Credit Karma.
Keep in mind that each credit bureau will most likely provide a different number for you. So, which one is the right one? The majority of lenders will utilize your Fair Isaac Co. score (FICO for short). Anytime you're applying for a loan, the lender will get this number for you and most likely tell it to you for free. Ultimately, you’ll get a number between 300 and 850, the higher the better. If your score is under 600, that’s not perfect, but don’t worry, we’ll show you how to quickly improve it.
Unfortunately, it’s quite common to have errors that negatively impact your credit report. An error can increase your interest rate or even block you from getting a loan all together. But, credit reports and your score are constantly changing. This gives you a good chance to review it and make changes accordingly.
Regardless of where the the mistake came from (identity theft, medical debt, student loans, etc.) you are entitled by the Fair Credit Reporting Act to dispute or challenge any item that you believe is an error.
There are 5 main factors that go into your FICO score. Each one of them is weighted differently and we need to know which one to focus on that gives us the most impact first. Here are the 5 factors:
Make sure your payment history is on time and you try to pay off your balance every month. You don’t need to have zero debt to qualify for a new loan, but reducing the amount owed is a fantastic way to show lenders that you’re in control of your finances. Keep in mind there is “bad debt” and “good debt”. Debt on a credit card, that’s bad, we want to pay that off as soon as possible. This is a major factor in determining your credit score. Debt on a home, that’s good, it’s ok to just pay the monthly mortgage. By focusing on just these two areas, you can increase your FICO score and get a lower interest rate for an auto loan.