Auto Finance: How Your Credit Affects Your Auto Purchase
For most folks, you need to take out a loan or lease in order to purchase a auto. The specific auto loan or auto lease terms you qualify for are heavily dependent on your credit score and history.
Credit allows us to purchase expensive items and pay them off over time, while paying interest to the company that helped us make the initial purchase. As you mature and progress through your adult life, there will be certain significant purchases that you’ll want to make. Common purchases are a vehicle, a home, home furnishings, and perhaps electronics or entertainment equipment. We all love to have nice things, and unless you can afford to buy these items with cash, they all have one thing in common; you need good credit to obtain them. If you’re a younger adult, you’ve probably heard that you need to have a good credit report if banks, credit card companies and other financial institutions are ever going to consider allowing you to make big purchases with money that they loan you.
Ever since you got your first job, credit monitoring agencies have been recording your credit as seen by the way that you spend your money. The three primary credit agencies are Experian, Equifax, and TransUnion. All three companies maintain a credit report on you based on information from banks, credit card companies, and other financial related companies. Credit reports were created so that lending institutions could research the financial prowess of a certain individual before agreeing to lend them money. Your credit report will also include details of your employment history, whether you pay your rent and utilities on time, and whether or not you have ever defaulted on a loan. These details all work together to give you a credit report and an overall credit rating. Then, companies use this information to measure your ability to handle financial responsibilities and thus determine if you are a low risk or high risk type of individual.
If your credit reports show that you are not very good with money, over time your credit score will decrease, and it will be hard for you to buy a car or a home when the time comes. If you’d like to be able to monitor your annual credit report, there are many online services that will help you monitor your credit score and report. In addition, by federal law, credit reporting agencies are required to provide you a annual copy of the report they have on you. You just need to contact them and request it. Monitoring your annual credit report is a good way to protect yourself and your credit against identity theft, negative items that effect your score, and errors.
When it comes to purchasing a new or used auto, your credit report will be used by potential lenders and auto dealers to determine if you can qualify for a loan to purchase your auto. Your credit report and score have a direct correlation on if you can qualify, and if so, what terms and interest rate will be provided to you. The higher your credit score, the lower the interest rate, and the less money you will pay in interest over the life of your auto loan.