Credit is one of the important factors that go into getting the best car financing. Many of our car loan customers are aware of the importance of credit and their credit scores, but they are not too certain of what credit exactly is or how it affects them. Here’s a brief overview of credit scores and how they may impact your car financing:
Credit scores are made up of five different categories. Each category carries its own weight and amounts to a different percentage of your overall credit score. Here’s what you need to know about these categories:
Length of credit history – this category amounts to 15 percent of your entire credit score. The length of your credit history is generally determined by the first account that you opened, such as the first credit card or bank account. It’s best to keep long-standing accounts. Therefore, be sure that you do not simply jump from one credit card to another or one bank account to another.
Payment history – your payment history will amount to 35 percent of your credit score – making it the most important aspect of your credit score. When going for car financing, it’s important to be able to show that you have a history of making payments on time. Therefore, if you have a bad credit score, try focusing on repairing this aspect of your credit score to get a boost. Also, taking out a car loan that you repay can help to repair this aspect.
Types of credit used – a credit card is a different type of credit than a mortgage. This category of your credit score amounts to ten percent of the entire score. To boost this section, limit the number of credit cards and general consumer credit you have and shoot for more long-term, asset building credit lines, such as a car loan or mortgage.
Amounts owed – the amount of money that you owe accounts for 30 percent of your credit score. This category is based on a combination of percentages that you owe on credit limits as well as raw money that you owe. Of course, try to limit the amount of money that you owe on consumer credit lines, such as credit cards.
New credit – this category makes up 10 percent of your credit score. New credit may be a concern for lenders because new credit may be something that you’re still adjusting to. Therefore, try to limit the amount of new credit you have when applying for a car loan in order to get the best rates. At Loan Doctor, the best place to get car loans in Canada, we look forward to helping you get a great car loan or to improving your credit so that you can qualify for lower interest rates and higher loan amounts. Contact us today for more details or to get started!