There is often work to do before you go shopping for a car, and it sometimes goes beyond research on models and comparative shopping. For many buyers, building or reestablishing credit is also time well spent.
Your credit scores will help to shape your auto financing. They can impact everything from how much you can borrow to the interest rate you will pay. Thankfully, there is much you can do to establish credit history, even if your scores are low or you are a first-time buyer without any credit.
How long does it take? Experts say that will vary for each person.
Here are some well-known strategies that experts say can help you build or reestablish credit.
Pay your bills on time, every time
Making on-time payments is a surefire way to improve your credit score and build good credit history over time. All good credit starts with timely payments. A good way to ensure your payments are on time—every time—is to set up automatic payments and/or electronic reminders.
Some people may need to make adjustments to their lifestyle as well, at least temporarily. Paying bills on time might require cutting unnecessary expenses, such as eating out. Or it may require increasing income with extra shifts or a weekend job. Just remember that paying on time and building better credit strengthens your entire financial picture. It can help you with auto financing and a great deal more.
Consider applying for a secured credit card
Secured credit cards, which are credit cards backed by a cash deposit in a bank account, are not meant to be used forever. The purpose is solely to help you establish enough credit to qualify for an unsecured credit card (one that doesn’t require the cash deposit) or other types of financing. As such, they are a useful tool. You may choose to start with a secured card, make payments on time, and establish a credit history. That will help when it comes time to apply for auto financing or other types of credit.
Keep your credit utilization low
Although having a credit card is good for establishing credit history, a maxed-out card does not help. One way to establish credit is to obtain a credit card, secured or not, and then make timely payments and maintain a reasonable balance. Experts advise limiting your use of credit to no more than 30 percent of your total credit limit.
Obtain a co-signer
A co-signer is someone who is brought on as an additional repayment source when you borrow money, enabling you to obtain terms you may not qualify for on your own. The classic example is a parent co-signing auto financing for a son or daughter.
A co-signer can be helpful in certain circumstances, but it should be approached carefully. If you obtain a co-signer, everyone should understand that the co-signer is responsible for the amount owed if you don’t make the payments.
Get pre-qualified for financing
There are car dealerships that offer financing to buyers with low credit scores or no credit history. Known as “subprime financing,” these opportunities can help buyers who may not otherwise be able to afford a car purchase. Obtaining financing like this and making payments on time can help improve credit scores.
If you are interested, consider getting pre-qualified for financing with Credit Acceptance. This allows you to secure financing before you visit car dealerships, so you know before you walk into a dealership how much you are prequalified for. It's an effective way to take control of your finances as you shop for your next car. To explore this option online, simply prequalify with Credit Acceptance in just a few minutes.
