Key Takeaways
- A credit score is a measure of your creditworthiness and how likely you are to pay back a lender.
- Your credit score can determine the terms of your loan for your new vehicle.
- The truth is there is no easy way or quick fix to improving your credit, it takes time and patience.
- A down payment is beneficial to you when you purchase your vehicle, but unnecessary.
What is a Credit Score?
Your Credit Score is a measure of how much a lender can trust that you will pay them back. The score ranges from 300 to 850, with 850 being perfect credit, and 300 being poor credit. Your score is determined by a wide variety of factors. First and foremost is credit history, or if you have negative credit items or positive credit reporting. Then there is also credit length, or how long you have had credit for. The longer you have had credit, the more accurate your score will be, and therefore a longer history is better. As a first time buyer, this might be what affects your score the most. Beyond that there is also the number of credit accounts you have open. Each of these factors can positively or negatively affect your credit score.
How does my Credit Score affect my ability to buy a car?
Your credit score affects the terms of your car loan, the better your credit the better your terms. Basically, you get a better interest rate on the loan if you have good credit. This can make buying a car for the first time a little difficult, because it takes time to build good credit, and there is no way around that. Unfortunately that often means having to deal with worse terms such as increased interest rates or needing to get a cosigner.
How do I improve my credit score?
The best way to improve your credit score is to avoid taking on more debt than you can handle, make payments on time, and to keep making these payments on time for a long time. There really is no quick fix to improving your credit score. It takes time to develop a high score and to fix negative credit items if you have any.
Do I need a down payment?
No, a down payment is not necessary to purchase a new car, but it definitely can help you in the long run. Putting a down payment down helps you in almost every way. It shows the lender that you are prepared to purchase your new vehicle, and it also reduces the time you will be paying your loan. All the factors of a down payment help, which makes it beneficial to you as the consumer to make a down payment. However, many lenders are willing to work with you on your down payment, and even when there may be no down payment.