Making a large purchase that requires financing can be daunting, whether it’s your first time or your 40th. Purchasing a car or a house isn’t quite the same as swiping a debit card at your favorite fast-food restaurant. Financing involves credit checks, down payments, and a pile of paperwork that can take hours to sort through and sign.
Your credit score is one of the most important parts of the equation to making a big purchase. A poor credit score can derail your plan before you even get started. Here are five tips for boosting your credit score so you can buy the car of your dreams.
1. Keep Track of Your Score
Knowing your credit score in advance of applying for financing is one of the best steps you can take to be prepared. Consider using a free credit score service to avoid surprises when you start shopping for cars or houses. Getting your score estimate from a free service doesn’t affect your score like requesting a new line of credit does, so keep track of your score regularly while you focus on improving it.
2. Pay Down Existing Debt
Did you know that the average American has more than $5,000 in credit card debt? Depending on how large your credit line is, how much you still owe on your cards could negatively impact your score. Experts generally agree that you should owe less than 30% of your available credit every month. That means if your credit line tops out at $1,000, you should owe less than $300 when your bill cycles. Keeping your credit utilization under the 30% mark shows that you know how to use credit responsibly.
Pay down your debt with some of these side hustles.
3. Still Use Your Credit (Sometimes)
Though keeping your credit usage below 30% is ideal, paying your credit cards to a $0 balance every month can also be a bad idea. According to one expert, a $0 balance can actually look like you aren’t using the card at all to some credit reporting agencies. You can also run the risk of having your account closed for inactivity if you stop using a card entirely. This can negatively impact your credit score since the average age of your accounts factors into your score. Credit agencies like to see a long history of healthy credit use, and not using your cards doesn’t help build that history.
4. Make Payments on Time
Missing a payment by more than 30 days is one of the quickest ways to see your credit score take a nosedive. You must make every payment on time to avoid late fees and a negative ding to your credit score. If you have missed any payments, get caught up with them and pay the outstanding fees and interest as soon as possible. You can avoid missing payments by scheduling automatic drafts from your bank.
5. Avoid Requesting New Credit
Opening new accounts can help you quickly improve your score if you have no credit history. However, new accounts can be problematic if you already have existing credit card debt. Applying for multiple new lines of credit shortly before making a large purchase can be a red flag for financing companies. Opening new lines also often require a hard pull of your credit history, which can lower your score for a short time.
Taking steps to boost your credit score is a good idea whether you’re planning on making a big purchase in a week, a month, or a year. The sooner you put some of these steps in action, the better prepared you’ll be when you’re ready to sign on the dotted line for that dream car.