For most people, financing their new vehicle is a major part of the car buying process. Central to a person’s ability to secure a loan is their credit score – the number that describes the amount of risk a lender faces by offering a loan to the individual. Before you head to the dealership, make sure you understand your credit score and what determines it.
Here are the five major factors that determine your credit score (in order of importance):
Payment history: Payment history has to do with how many late payments you’ve made, how late they were, and whether or not any debts have been sent to collections. Charge-offs, debt settlements, foreclosures, bankruptcies, and wage attachments all weigh heavily against your score.
Amounts owed: This factor looks at the amount of your total available credit you are using.
Length of credit history: The length of time which you have a credit history shows how long you’ve been managing debt. It’s good to carry the same accounts for a long period of time, as opening and closing accounts too often shows lack of stability.
New credit: FICO scores look at the amount of new credit you have. The more new accounts you’ve opened up recently, the greater risk you might be to another lender.
Types of credit in use: Credit scores also take into account the amounts you owe on different types of debt, including mortgages, car loans, and credit cards. A good mix of debt managed responsibly works in favor of your credit score.