Preparing Your Credit Before a Vehicle Application

The finance office is the wrong place to learn what is on your credit report. By then the lender has already decided. Preparation happens in the weeks before you shop.

What do auto lenders look at on your credit report?

• Recent payment history. A late payment in the last year or two carries more weight than an old one.
• How you handled previous vehicle loans. A prior repossession or a charged-off auto loan is looked at closely.
• Balances relative to limits. Cards near their limits suggest strain, even when every payment is on time.
• Collections and unresolved items. Including ones you did not know were there.
• Income and existing payments. Credit is one input. The lender is also asking whether the payment fits your budget.

Four to eight weeks before you shop

1. Pull all three reports from AnnualCreditReport.com and read them using this checklist.
2. Dispute what is wrong, starting with anything in the categories above. A bureau generally has 30 days to investigate, so this cannot wait until the week of.
3. Pay down the cards closest to their limits if you can. This is one of the few things that can change what a lender sees within a single reporting cycle.
4. Do not open new accounts in the meantime. New inquiries and new accounts rarely help a pending application.

Decide on total cost, not only the payment

A dealer will ask what monthly payment you are comfortable with. That question has a hidden second half: over how many months? A payment of $413.74 over 84 months and a payment of $529.95 over 60 months are for the same $25,000 at the same 9.9% rate, but the longer loan costs about $2,957.27 more in interest. Decide your total budget before you sit down. Our rate comparison shows the effect of rate and term.

If you are declined, read the notice

When a lender declines you based on information in a credit report, it must tell you the main reasons and which bureau supplied the report, and you are entitled to a free copy of that report within 60 days. Get it. The reasons usually point to one or two specific items, and those are the first things to review and, if inaccurate, dispute.