Having bad credit or no credit can make it difficult to get a car loan. Here are a few tips to help you fix your credit.
Obtain A Copy Of Your Credit Reports
Obtain a copy of your credit report from each of the three credit bureau; Transunion, Equifax and Experian. It is necessary to obtain a copy from each bureau because they operate independently and report different information. The Fair Credit Reporting Act allows each individual to get a free copy of their report from each bureau per year. You may also want to order your FICO score.
Review Your File
Your report will contain personal information including name, date of birth, employment and previous addresses. Check the file to make sure everything is accurate. Credit reports also have a section for financial legal issues including liens, judgments and bankruptcies. You may want to take a close look at the creditor section which displays the number and type of accounts you have, balances, credit limits and late payments. If you find inaccuracies you will need to dispute them with the credit bureaus. The credit bureaus investigates by contacting the creditor and verifying the information.
Dispute Inaccurate Information
If you have negative information that is accurate (for example, if you have late payments), you can try to contact the creditor and ask if they are willing to remove it if you’ve had an extenuating circumstance such as an illness or job loss. The creditor isn’t legally obligated to remove derogatory information but it’s worth a try. It generally takes 7 years from the date of last activity for negative information to drop off your credit report. Chapter 7 bankruptcies take 10 years from the filing date to age off.
You can also try to dispute negative items on your credit report even if they are accurate. Generally, the creditor or collection agency will verify the information as accurate but if they don’t issue a response within 30 days, the item in question gets removed.
Have A Mix Of Revolving & Installment Accounts
In order to maintain a solid credit history you may want to have a mix of credit cards (also known as revolving accounts) and installment accounts such an auto loan. Try to keep the number of inquiries low which means not applying for credit excessively since this can affect your credit score. Inquiries have a statue of limitations of two years.
Keep Your Credit Utilization Low
Take a look at your credit utilization and make sure that the balance is relative to the credit limit since this can also affect your FICO score. Try to keep your credit utilization between 10%-30%. Increasing your existing credit limit is another way to improve your credit utilization. Most creditors are amenable to credit limits if you’ve been making payments in a timely manner.
Focus On Aging Accounts
Consider the age of your credit accounts since this can factor in your credit score. You may want to avoid closing your oldest accounts. If you don’t have established credit you may want to open a credit card in order to build history. If you are finding it difficult to get approved you may want to consider applying for a secured credit card. These require a deposit which the creditor can draw on in case the borrower defaults.
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