Building Credit With an Auto Loan: A Step-by-Step Timeline

If you're planning to finance your next vehicle, your credit score can make a big difference in the loan offers you receive. The good news is that you don't need years to make progress--with a little planning and a focused approach, you can strengthen your credit profile in just a few months. Find out how to get a better car loan below!

Key Takeaways

• Reviewing your credit reports helps uncover errors that could be lowering your score.
• Reducing credit card balances is one of the quickest ways to improve your credit profile.
• Building a positive payment history before applying for financing can help you qualify for better loan terms.

Understand Your Credit Profile in the First Month

Start by tracking down errors and solving disputes in your credit reports from Equifax, Experian, and TransUnion.Go over them with a fine-tooth comb to find incorrect account statuses, duplicate collection accounts, fraudulent late payments, or old debts that should have fallen off. A wrong address matters too, so make sure that's correct.

Contest any errors immediately--the bureaus have between 30 and 45 days to research any claims.

Next, turn your attention to your credit card balances. Credit utilization (that is, the percentage of available credit you're using) accounts for about 30% of your credit score. Keeping it below that number is recommended, but dropping balances below 10% gives you an even greater advantage.

Pay down the cards with the highest utilization first. It also helps to make payments before your statement closing date, since that's typically when issuers report balances to the credit bureaus.

If your card issuer offers a credit limit increase without a hard credit inquiry, consider asking for one. A higher limit immediately improves your utilization ratio. Just as importantly, avoid closing paid-off credit cards, since doing so reduces your available credit and can negatively affect your score.

Build Positive Credit Habits in the Second Month

Address any dings as you go. If you have a late payment on a generally strong account, contact the lender and request an adjustment. Some lenders will remove late payments for customers with positive histories.

Make sure to make payments on time, as your payment history carries the most weight in your score. Setting automatic payments for at least the minimum amount can help prevent any late payments.

Finally, consider opening a secured credit card or applying for a credit-builder loan through a local credit union. Another option is to become an authorized user on a trusted family member's long-standing credit card with a low balance and a solid payment history.

Prepare to Apply for Financing in the Third Month

As you get closer to buying a vehicle, continue monitoring your credit reports. If there are still issues, contact both the credit bureau and the creditor that reported it to inquire as to what you can do to resolve them.

Hard inquiries can affect your score, so don't apply for any other loans at this time. Submit applications through multiple lenders within about two weeks' time. (Scoring models treat multiple applications made during that window as a one inquiry.)

Before visiting us or any dealership, get written pre-approval showing your loan amount, interest rate, and repayment terms. When you have financing already in place, it puts you in a strong position to negotiate and allows you to compare financing you're offered against your pre-approved loan.

Give Yourself the Best Chance at a Great Loan

Taking these weeks to improve your credit can pay off with better financing options and lower borrowing costs when it's time to apply for your next auto loan. And when you're ready, make sure to come see us. We're here to get you into a vehicle that you'll love--it's the Alan Jay Way!