Whether you have average credit, great credit, or bad credit, you’ll want to protect your credit score while you’re shopping for a car. A higher credit score qualifies you for better deals on financing and can often get you dealer incentives – so you’ll want to keep your score as high as you can while shopping around for a new or used car.
So, how can you protect your credit score while shopping for a car? Here are our top 5 tips.
1. Keep That Credit Utilization Low
One of the biggest factors that impacts your credit score is what’s known as your credit utilization ratio. In plain English, this is the ratio of debt that you’re carrying on your cards compared to your total available credit limit.
For example, if your current credit card balance is $1,500 across two credit cards with a limit of $2,000 and $4,000, respectively, you’re using $1,500 out of $6,000, and your credit utilization ratio is 25% – which is perfect!
To keep your credit score high, it’s best to use less than 30% of your available credit. This signals to lenders that you are responsible, and not overspending on your credit cards.
2. Consider Making Extra Payments Every Month
If you have to spend a lot of money each month, or you have credit cards with low limits, you may want to think about making more than one payment per month on your credit cards.
Credit utilization ratio is only calculated at the end of the month. So if you make extra payments, you’ll be able to decrease your credit utilization ratio, which will protect (or even boost) your credit score.
3. Don’t Miss Any Payments (And Consider Setting Up Autopay)
This should be obvious, but it bears repeating. Don’t miss any payments on your credit cards or other bills. If you do, your credit score can suffer from a significant drop.
It’s best to use credit cards just like you would use a debit card. Only spend money that you have, to ensure that you don’t have to miss payments or make minimum payments.
You should consider setting up autopay on your credit card accounts. If you do this, the full statement balance of your card will be deducted from your bank account every month – you don’t have to do a thing.
4. Don’t Open Up Any Other New Lines Of Credit While Shopping
Again, this may seem somewhat obvious, but you shouldn’t be opening new credit card accounts or taking out any other personal loans before you go shopping for a new car. Each one of these applications results in a “hard inquiry” which can reduce your score.
In addition, new lines of credit make you seem riskier to lenders, and can also impact the length of your credit history, further negatively impacting your score. So don’t apply for a new credit card until you’ve purchased your car.
5. Limit Your Car Shopping To A Two-Week Period To Prevent Multiple “Hard Inquiries”
When you apply for financing at a bank or with a car dealer, they will do what’s known as a “hard inquiry”, to check your credit score. This can lower your credit score somewhat, which is normal.
However, if all of your credit inquiries are made within 14 days, they will be counted as just a single inquiry when calculating your score. Each individual inquiry will be listed on your credit report, but they will only impact your credit report as much as a single inquiry.
So, when you’re ready to shop for a car, make sure you can find a great vehicle and close the deal within 2 weeks to protect your credit score.
Follow These Tips For A Better Deal On Your Auto Loan!
A high credit score is the best way to get better deals on financing at car dealerships. Got bad credit in Canada? No problem! At Ride Time, we can help Canadians with bad credit get great deals on high-quality used vehicles.
We have a network of highly-specialized lenders. Bad credit? No credit? We can help! As long as you have a valid driver’s license, make $1,500/month before deductions, and proof of 2 months of employment, we can help you find the right car. Shop now, and get a great rate on a used car in Winnipeg or anywhere in Canada!