For car buyers who have no credit, and for those that have damaged credit, it is important to know what credit mistakes to avoid when you are trying to achieve a healthy credit rating.
Avoiding Credit Repair Missteps
When you are attempting to build healthy credit, there are a number of ways to do it, such as keeping up on your payments as well as having a healthy mix of revolving credit (such as credit cards) and installment credit (like an auto loan). And, while on that path, there are obvious - and not so obvious - credit mistakes that can derail your efforts.
- You don't check your credit report.
There are three major credit reporting agencies in the United States - Equifax, TransUnion, and Experian. The only way to know where you truly stand credit-wise is to know what is on each of these reports. Essentially, if you're only judging how good or bad your credit is based only on what you know you are paying, you might have a very different idea of what your credit rating is versus that of a lender, who looks at your actual reports. You can get a complimentary copy of your credit report from each of the three major bureaus once a year at AnnualCreditReport.com.
- You don't dispute or know about errors on your report.
In a 2012 study by the FTC, it was concluded that 1 in 5 consumers have one or more errors on at least one of their credit reports. Once you have obtained your reports, it is important that you look over them thoroughly instead of just giving them a cursory glance. Check all the times your name and address(es) appear on your report to ensure that they are correct, and the same goes for accounts that are not familiar to you. The last thing you want is a simple name misspelling or a fraudulent account to be the reason you cannot get approved for a loan.
- You close old credit card accounts.
If you once had or currently have certain credit accounts where you missed payments, it may seem like a great idea to close them once you have paid them off to avoid future trouble. However, doing so won't help your credit score, especially if they are older accounts that help show that you have a long credit history. Also, closing accounts will remove those lines of available credit from your overall credit, which will affect your credit usage ratio. The maximum amount of your total credit that lenders like to see used on revolving credit accounts (i.e., store credit lines and major credit cards) is 30%. So, if you close one of those credit lines down completely (especially one with a higher available limit), it could increase this ratio to a number that lenders consider too risky.
- You apply for and open many new credit accounts.
Building a strong credit history is especially important for those with no credit, and it seems perfectly reasonable for one to think that opening many accounts at once will help quickly boost their credit score. In actuality, this wildfire approach places many hard inquiries on your report in a short period of time, and lenders will see your multiple attempts as a sign that you are desperate for credit and that something must be wrong financially. In this case, slow and steady wins the race.
- You use a quick-fix debt repair company.
We know how it goes - when you are having issues with your credit, trying to fix errors can be a major pain. It can be very tempting to go with a credit repair company that promises quick results. However, you need to be wary of any service that makes these kinds of statements. Reputable companies will be honest and forthcoming about what they can and cannot do, and they certainly won't make promises like ensuring that you will see a quick, large increase in your score. Not only is that claim untrue, it is also illegal for them to make such claims. Once again, slow and steady will win the race.
Making the Right Call
Not everyone can wait for their credit to be in pristine condition before a car purchase. Drivers Lane works with a nationwide network of car dealers that have the lending resources for car buyers with no credit or damaged credit. When you apply with us, we will connect you with a dealer nearest your local area that is best qualified to handle your unique credit situation. Complete the fast, secure and obligation-free online application today, and get back on the road.