How to Improve Your Credit Report Before You Purchase a Car

If you want a car loan with good terms, it is important to have the best credit score possible. Since the first thing anyone offering potential financing to you will do is to check your credit report, it is wise to view it yourself first.

What Does your Credit Report Contain?

A credit report is a record of the outstanding accounts in your name. It includes mortgages, auto loans and credit cards and the balances and credit limits for each account. Three credit bureaus provide reports and under some circumstances free credit reports are available: Equifax, Experian and TransUnion. Your credit report from each bureau also assigns you a credit score; many lenders use this number to determine whether you are a viable credit risk.

Getting Your Credit Score

When you apply for a loan, the lender generally immediately runs a credit check. When a lender or dealer runs an inquiry on your credit, it will appear on your report and may lower your credit score. However, when you check the score yourself, your personal inquiry does not affect your score in any way. Your credit score is the most commonly used factor lenders use when they assess a borrower's ability to repay a loan. Because of this, it is wise to know your credit scores and to monitor them regularly. Web sites such as MyFICO.com, CreditReporting.com and OnlineCreditInfo.com make it easy to access all of your credit scores and reports in minutes.

Improving a Poor Credit Report

Your credit report will indicate any negative factors affecting your score. The report includes things like late payments, the length of credit history, your total amount of debt and the amount of credit available to you.

The first thing to do is to carefully review your credit report and make sure the information is accurate. Mistakes on credit reports can lower your score and should be corrected to ensure your report is an accurate picture of your financial history. Note that correcting errors on a credit report may take from six to eight weeks. If you find an error on any of your reports, immediately report it to the credit bureau in writing; they are required to respond to your notice within 30 days. A sample dispute letter can help you get started on your written contact to the credit bureaus.

You should contact all three credit bureaus. Their contact addresses are:

Equifax
P.O. Box 740241
Atlanta, GA 30374-0241
(800) 685-1111

Experian
P.O. Box 2002
Allen, TX 75013
(888) Experian
(888) 397-3742

Trans Union
P.O. Box 1000
Chester, PA 19022
(800) 916-8800

To correct a bad credit rating that is not based on error, you must establish a pattern of good credit behavior. To improve your credit report and score:

• Pay all of your bills on time.
• Catch up on late accounts and make on-time payments in the future; while bringing payments current will not remove a negative mark from your credit report, a current account is viewed more positively than one that is still delinquent.
• If you do not maintain any balances on your cards, consider carrying a small balance and making regular, timely payments in order to show a history of responsible payments.
• Keep your credit card balances low and do not keep the balances close to your credit limits.
• Do not close credit card accounts unless you have very little debt. This may actually lower your credit score if you have a high balance and low available credit remaining.
• Do not open additional credit card accounts that you do not need; it is also not a good idea to open many cards in a short period of time.
• Do not use your current credit cards for additional purchases if you are already carrying a balance.