A credit score is a 3-digit number used to evaluate your creditworthiness. It is using information from your credit report and indicates your likelihood of repaying your debts in a timely manner.
What Does your Credit Score Mean?
Your credit score is your credit history’s numeric representation. It consists of five essential components that have accompanying weights. Such components include your payment history, the length of credit history, the amounts you owed, the number of credits in use and account inquiries. Lenders are using your credit score to assess your credit risk.
Your Credit Score and Car Loan
Buying a car is one of the most wonderful things you can do in your life. However, when you are thinking of purchasing a new car, there is actually more to take into consideration than just the model and size you want to buy. Along with ensuring that your car has high safety ratings, you will also want to make sure that your credit is in good shape to qualify for financing and obtain the best finance rate possible.
Lenders can see your credit history and your credit score. In your credit history, they will be able to see the details of your current and past credit accounts. Your credit history also documents when you or a lender asks or your credit report and the times when your account has been passed on to a collection agency. Various financial issues, such as bankruptcies, liens, foreclosures and judgments are also included.
Your credit score can indicate your ability to pay a car loan back. If you have a high credit score, it means that you have a higher probability of making your payments on time and paying your loan. If you have a good credit score, you will often qualify for a low interest rate car loan, and in various cases, you may qualify for zero percent financing. Individuals with low credit scores can face high interest rates.
The amount of your down payment can also be affected by your credit score. For those with lower credit scores, they will commonly be required to put a large amount down on the car, apart from paying a high interest rate on the loan. Low credit scores represent high risks to lenders, and due to that, they want to recover huge amounts in just a short time period.
Financing rates vary a huge deal on your credit score. One of the main factors that finance companies and banks use in order to identify the rate to offer you is their perceived risk from your credit history. Therefore, having a good credit score is crucial.
Before shopping for a new car or considering a car loan, you need to know where your credit really stands. Remember that since your credit score also takes into account your credit history, and not only your current situation, is could take some time to see your credit score improved.
Indeed, your credit score plays a critical role not only in obtaining car loan but also in your financial journey.