So here you are, wondering how you can get a car loan with lousy credit, and with no clue how to raise that all-important credit score. Credit scores define our financial lives, and greatly impact our ability to get a car loan, a mortgage, or even that dream job. They're financial report cards, mirrors reflecting how well we handle money, and more broadly, how well we handle our lives. A lousy credit rating is not necessarily a death knell, but it does take some work to improve.
Know your credit score. A credit score is a number between 300-850 that's assigned to you, and it rates how risky a borrower you are. The higher your score, the less risk you pose. If your score is 800 or above, lenders will flock to your doorstep for whatever your loan needs are -- a car, a house, or schooling.
The single best way to increase your credit score is to develop an ironclad rule that you will pay your bills in full, on-time, every month -- no exceptions. It may take a year or longer for this behavior to be reflected in your score, and for that score to rise.
Lower your utilization ratio, which is how much you owe on credit cards, divided by your available credit. Keep this ratio below 30 percent. While it's tempting to max out your cards on the latest in consumer electronics, a high ratio immediately brands you as a high-risk spendthrift. Your utilization ratio accounts for fully one-third of your credit score.
Dust off an old card you haven't used lately. If you have an open credit card stored in your underwear drawer, use it -- but don't max it out. Be prudent in charging, but establish an on-time payment history with this account.
Get rid of errors in your credit report. Credit score agencies and creditors make mistakes just like you do. Target these errors and get them off your report. This may take some time, and repeated requests, but why should you pay with a poor score if the information isn't even about you?
Ask to have late pays and charge-offs removed from your credit history. Generally, these remain on your report for seven years, but if you ask nicely, the company that put them there may remove them earlier. This can be a time-consuming process, but it's well worth the increase in your score.
- Progress may take some time. The credit reporting agencies update information monthly, but it may take longer for your creditors to submit changes. It's okay to be a pest.
Lisa Nielsen is a marketing consultant for small businesses and start-ups. As part of her consultancy, she writes advertising copy, newsletters, speeches, website content and marketing collateral for small and medium-sized businesses. She has been writing for more than 20 years. She is also a business strategist, trainer and executive coach. Nielsen holds a Master of Business Administration from the University of Miami.