How I increased my credit rating to buy a car
As an auto finance writer, I give my readers tips every day on how to be smart about their credit. These are solid and proven methods to improve your credit – often advocated by the credit bureaus themselves. But other than trying the tips and waiting for the results, how are you, my readers, to know that this tip works? Do not be afraid. I’m here to tell you how this tip has worked for me.
Take my own advice
I’ll tell you a secret: I’ve struggled with credit my entire adult life. Financial advice is something that I think has always been presented to me as taboo. You just haven’t talked about your finances with other people. Growing up, things worked and my parents didn’t share the ins and outs of their financial burdens or struggles with us. I don’t know if this mentality was unique to my family, but, silently embracing the idea of you keeping your finances to yourself, I never really thought about the consequences – until now.
I knew I had to do something to increase my credit rating because there are things in life that I can’t wait to live. These are important articles that I will have to fund. One of them is a car. So I decided to put my money where my mouth is and use the advice I give as a writer.
Knowing that I needed to improve my score, I decided to check my credit reports and come back in January. What I found was a score of 579, a good payment history and good credit duration, and only correct scores in three sections: credit usage, credit mix, and new credit – because I had none of that. There weren’t any “bad” ones in my credit reports, there just weren’t many.
If you’ve ever read on credit, you might know that there are two important pieces to the puzzle: credit scores and credit reports. The information in your credit reports helps determine your credit score, with each item representing a percentage of the total score.
As a reminder, here are the pieces of the puzzle according to FICO, and how they break down:
- Payment history – 35%
- Use of credit – 30 percent
- Length of credit history – 15%
- Distribution of credits – 10 percent
- New credit – 10 percent
FICO is not the only credit score out there, just the most widely used by lenders. Other scores, such as VantageScore (TransUnion), use different calculations to build your credit score, so you may be able to see a range of scores, depending on where you are looking. For example, my FICO score is now 619, while my VantageScore is 528.
How I ended up improving my credit
Because my only debt was from student loans, which are installment loansAdded to the fact that I hadn’t even thought about applying for credit in years, these two pieces of my credit puzzle were missing. That’s 20% of what constitutes a credit score that I didn’t know about. Based on the advice I give to my readers every day, I knew that adding my new combination of credits and credits would be helpful.
So I applied for a store credit card. I was approved and my new credit increased with my credit mix by adding a revolving credit to my portfolio. That alone has helped increase my FICO score by 20 points over the past six months.
But I know that if I hope be eligible for a car loan with the best possible interest rate for me, I want my credit rating to increase another 21 points before I apply.
What still holds my credit
In order to get these 21 points that I hope to win, I still have room for improvement. One of the biggest pieces of the credit puzzle is using credit, and mine stinks. In fact, my use of credit went from zero percent to 106 percent. Obviously, I am not following the advice that I have asked my readers to follow. I always advocate keep your credit usage at 30% or lesswhich means you should only use or keep a balance of 30% of the credit you have available.
When I got my new credit card at the store, I “might” have taken a shopping spree or two. Overspending is a bad habit with many credit card holders, and apparently I’m no exception. My available credit, which I have maximized, has the added benefit of interest – this is how my credit usage got above 100%, in case you were wondering. It’s not an improvement, but now I have the unique opportunity to reduce this usage and see how it improves my credit rating.
Using my card in the past six months I’ve only made the minimum payment each month. My credit usage will continue to be high until my balance is significantly lower or my balance is fully paid off. If I had taken more of the advice I give – like paying off my credit card balance in full each month – I would probably already see better results and a higher credit score.
Stay with me, things are getting better
The best advice I can give you at this point is that the credit improvement tips we write about the job. The more you follow them, the better your results will be. Of course, there are many factors that go into building your credit and your results will vary.
For me, past missteps play a huge role in my personal credit situation. This is something that I learned and that I am catching up with now. The good thing about credit, however, is that you can always improve it if it’s going down. The process won’t happen overnight, and there are many ways to increase your credit, depending on your situation.
I will continue to work to reduce my credit usage and start save for a down payment, because when I reach my goal, I plan to apply for a car loan. Since my score is still not going to be great and I have never financed a car before, I will probably need a subprime auto loan. The good news is that a car loan can be a great building block for credit improvement.
If you’re in this boat with me, see what Express auto loan can do for you. Not only do we offer great auto financing tips and advice, but we can also help you connect with the resources you need to get one. You can connect with a local car dealership near you to start your own credit improvement journey.
So stay with me, readers, as I continue on this credit improvement journey. I’ll keep you posted along the way.