Dream Big and Watch Your Credit
The pathway to independence varies by perspective. Many teenagers feel buying their first car makes them an adult. Owning a car provides freedom to drive about town with friends for a movie or late-night snack. However, it’s not just teens who have dream cars. Regardless of your age, car ownership is a defining factor of life. If you’ve been working towards finally getting your dream car, it’s time to check your credit and assess your financial standing.
Car Financing
Car ownership can take three positions: lease to own, outright purchase and lender financing. In a leased car situation, you are able to drive a brand new car for a low monthly payment. At the end of your contract term (decided between yourself and the dealer), the car is returned to the lot and the contract is complete. At this time, you usually have the option to purchase the car for the residual price agreed upon at signing or to walk away.
With an outright purchase, you pay cash for the entire amount of the desired car and drive it off the lot with no obligation to a lender or dealer. You will receive the title to the car and only have the responsibility of covering it with insurance.
With lender financing, generally, you make a substantial down payment on the vehicle and a lender provides the loan to pay the dealer. You then settle the debt with the lender directly with a financing fee (interest rate) rewarding the lender for assuming the risk. You will not receive the car title until the entire balance of the loan is settled with the lender.
Why Credit Matters
If you don’t have the cash to pay for a vehicle but you want to make a vehicle purchase, your credit score will have a major impact on your ability to acquire lender financing. Before a lender assumes you will pay the bill for the car of your dreams, they need a record of your financial stability.
This is where a credit report comes into play. Not only will this paperwork reveal your credit score, but it will also display your history of payments with other lenders and it presents your debt to income ratio. You might have an excellent job and can promise to make the payment, but the paperwork will tell the story. There are several types of lenders, and the higher your credit score or more favorably your report reads, the better deal you will get on financing.
How to Raise Your Credit Score
If you know that you will be looking to make a vehicle purchase soon, there are several things you can do to build good credit.
- Make credit card purchases wisely. If you have a large unused limit, keep it that way. Good credit card usage is seen as having stayed below 30% of maximum funds available.
- Don’t have too many open credit accounts. The debt to income ratio needs to show you are living within your means and can assume a large auto payment.
- Make all your payment on time. Keeping your accounts in the clear boost your credit score. Arrange payment deadlines to work around your income stream and ensure you can make the payments on time.
The longer your credit accounts are open and in good standing, the better your score will be. It might mean that you need to wait a year before making your auto purchase, but you will have better lending offers if you do. Please don’t hesitate to visit this site to get more information about how to raise your credit score and finally getting your own dream car.
