Maximizing your Pre-Purchase Credit

Unless you have a stellar credit score of 700 or higher, you could probably benefit greatly by preparing your credit in advance of seeking pre-approval for your auto loan. Getting your credit score higher by even 50 points (eliminating one unpaid debt), can save you a percentage point on the loan offers that you will receive. This will translate into more than a thousand dollars in savings over the life of your average-sized auto loan.

• Get copies of your credit reports: You are entitled to one free copy of your credit report from the three major credit reporting agencies per year. By requesting your credit report from Experian, Equifax and TransUnion, you will be able to identify those trouble areas on your credit that you should be able to take care of relatively quickly. Pay off or negotiate away any collections that appear on your credit and write to the agencies to have removed those items that you believe are in error.
• Pay down debt: If you have credit cards, you should pay down (or zero out) the balances on them at least a month before applying for an auto loan. The less outstanding debt you have, the more favorable your credit rating will be to any potential auto lenders.
• Save up a huge down payment: Coming to the table with a large down payment (at least 20%), has three advantages for you when you are seeking to get a low-cost auto loan.
• 1. It helps to keep you from going upside down in your auto loan. Cars depreciate immediately after they are driven off the lot and in their first year, that depreciation is extreme (about 20%). If you pay down a lot of money toward your automobile, you will manage that depreciation much better and will be less likely to ever end up upside down in your auto loan.
  2. It impresses banks. That you are putting forward so much of your own money into this auto loan helps to convince bankers of your ability to gather cash to pay your debts. As a result you are likely to get more favorable loan terms.
  3. It reduces payment amounts and saves money. The less you borrow, the less you will pay in interest. In addition, your monthly payment amount to the loan will be substantially smaller as well.
• Don't spend all that you can afford: Even though an auto lender may be willing to offer you much more money than you expected, that doesn't mean that you have to spend everything that is offered up to you. You are far better off now and in the future for your credit score, if you can manage to spend less than you are offered on your credit loan.

Keeping these tips in mind and enacting some of them in the months leading up to your car purchase can save you hundreds or thousands of dollars in the long run and leave you feeling much better about your auto purchase when all is said and done.