Nobody likes to be rejected, especially when applying for a car loan. While it’s true that millions of people have credit scores that are less than perfect, if your credit is a problem, it could prevent you from owning the car of your dreams.
So, what can you do to fix your credit before shopping for a vehicle? We want to do everything we can to help you finance a new or pre-owned Honda – whether that’s at one of our Valley Honda Dealers locations or somewhere else in the world. Here are 9 tips to help you get started.
1. Know The Credit Basics
Let’s start by understanding the basics of how financial institutions determine good or bad credit. Most lending institutions rely on credit reports that come from three major credit-reporting agencies: Equifax, Experian, and TransUnion. Each of these agencies compiles information about your creditworthiness based on your credit history. Their credit reports list all of your current outstanding debts and show whether or not you paid them on time.
That leads us to tip #2:
2. Get A Free Credit Report
So, the first step you can take to start fixing your credit is to know what these three reporting agencies are telling the banks about your credit. To do this, you can order a free copy of your credit report from each of these agencies once a year. Look it over for any errors and contact the reporting agency right away to inform them of any mistakes that are adversely affecting your credit rating.
3. Know Your FICO® Score
The second step is to understand the importance of what’s called the “FICO®” score. This score is a number between 300 and 850; the lower the number, the “worse” your credit. Most average credit scores are somewhere between 650 and 750.
You can find your FICO score on websites such as myfico.com. (Note that some websites charge for this service. If you have any questions about identifying or understanding your FICO score, you can contact your Honda dealer’s financing team.)
4. Pay Debts On Time
The third thing you can do to help fix your auto credit is to pay your debts on time. In fact, staying current on your debts is one of the most important factors that credit reporting agencies and banks use to determine your loan eligibility and interest rate, or APR.
5. Set Up Auto-Pay & Reduce High-Interest Debt
If you are behind on payments, get caught up and stay current. If your account has been referred to a collection agency, that information will stay on your credit report for 7 years.
Set up payment reminders on your smartphone or write them down on a calendar to remind you to pay them on time.
Another way to make it easy to pay your bills on time is to set up automatic payments. Just remember to time your payments so that you have enough money in your account to pay them.
You can also use third-party companies like truebill.com to help you manage and identify unused subscriptions or services.
6. Be Cautious with Credit Cards
Another thing you can do to fix your auto credit is to reduce your debt, which may mean you’ll need to stop using your credit cards.
Read your credit report and list all of your debts, or check recent statements, then rank your debts in order of the highest interest rates. Start paying those off first. If you just continue to make minimum payments, you’re barely paying the interest and not touching the principle. Strive to make the maximum payments that your budget can afford.
A few other tips regarding credit cards:
- Don’t use one credit card to pay off another credit card.
- Don’t get new cards that you don’t need.
- Don’t close old cards or accounts, especially if they’re paid off.
- If you use a credit card, try to pay off your balance every month to avoid any interest rates.
7. Contact Your Debtors & Make Arrangements
To help fix your auto credit, contact your creditors directly if you have trouble making payments. Many creditors will work with you to help make your payments easier to manage.
The worst thing you can do, however, is to ignore repeated requests for payment. If you know that you are going to be behind, contact your creditors right away and try to work something out.
Also, check if your current auto financing or leasing company is offering any COVID assistance. For instance, Honda is offering assistance if you’re facing financial hardship during the 2020 pandemic. Speak with our Valley Honda Dealers for more information.
8. Avoid “Credit-Fixing” Companies
Some other things you should steer clear of are companies claiming they can “fix” your credit for a fee. Many of these companies prey on people with bad credit who are getting desperate. These so-called credit repair companies offer services for tasks that you can do for free yourself.
Instead, you may consider meeting with a qualified and reputable credit counselor who can advise you on how to improve your credit. (Before signing up with any credit counselor, check out their ratings and read customer reviews.)
9. Go To A Reputable Car Dealer
You should also be wary of car dealerships that use such phrases as “buy here, pay here,” “we are the bank,” or “we carry our own paper.” Many of these dealerships simply pass the loan on to a third-party lender, or you’ll wind up paying exorbitant interest rates. They often use high-pressure sales tactics to get you to sign on the dotted line.
One of the big car-buying myths is that you can’t buy a car with bad credit at a normal dealership. If you’re in the market for a new or used car near Phoenix, it’s much better to deal with a reputable car dealership from our Valley Honda Dealers network. Our trained finance professionals have the experience and the tools to put you into a new or pre-owned Honda or another vehicle that you can afford, even if your credit has some blemishes on it. Once you’ve picked out the car you want, we’ll sit down with you and come up with a personalized finance plan that works for you. Believe it or not, buying or leasing a car from our Honda dealerships and making regular on-time payments can actually help your credit score in the long run.
Score A Great Deal at Valley Honda Dealers
Now that you know the score about fixing your auto credit issues, let us help you score a great deal on a new 2020 or 2021 Honda. We have dozens of excellent Honda lease deals and finance offers available, making it the perfect time to buy! Contact a Honda dealer near you to get your auto finance application started, receive a quote, or learn more about your favorite Honda model (we hear the 2021 CR-V Hybrid is quite special).