A credit score of 707 is currently below the national average for U.S. consumers, according to MyFICO.com. Though this score puts you above the 80th percentile of all Americans, you can forget about obtaining an auto loan with good to excellent terms.
Though the difference may seem negligible, you’ll need at least a 720 FICO score for the lowest APR and monthly payment on a 36 or 48-month auto loan. The average credit score for people with an existing auto loan in Q2 2013 was 761, according to Credit.com.
Your credit score is basically an aggregate risk analysis of your ability to pay back a loan. Payment history and the amounts owed on your trade lines have the biggest overall impact on your score: 65 percent. Length of credit comes in second, with new credit and types of credit having the least influence. With that in mind, here are three ways to quickly improve your credit score:
Report Your Old Card Lost
Some people may view this as unethical, but its perfectly legal and will boost your credit rating rather quickly. Call the credit card company of your oldest account (the one that’s been open for the longest period of time) and report the card lost or stolen. The company will immediately close that account and give you a bunch of other instructions that will vary from bank to bank.
All credit card companies will then transfer your old credit history from the stolen card to a new account number they create for you. The old account, however, will still appear on your credit report with the same history as the new account up to the day you reported it lost. Thus you have just created a second account that has been open for a very long time.
When you get your new card, charge something on it if the balance is currently $0, then pay it off in full when you get your statement. You may pay a few dollars in interest, but what you have essentially done is give yourself more length of credit (15 percent influence overall) and just improved your payment history on the newly opened account number (35 percent influence).
Pay Down, Pay Off
Another factor that greatly affects your credit score is your debt-to-available-credit ratio. For instance, if you have four credit cards with a total limit of $10,000 between them all, the absolute highest total balance you want is around $3,000 (or 30 percent debt). The more available credit you have, the more banks will view you as financially stable and able to pay off a potential loan.
The easiest way to come up with extra cash to pay down your cards is by changing the number of exemptions you claim on your W4 at work. Most people just instinctively claim “0” so the IRS takes out the maximum they can per paycheck. But claiming 1 or 2 exemptions will increase your net pay by 10-15 percent. You can even claim “exempt” for a few months, which stops federal and state taxes from being withheld completely. Change it back after a few months and simply make up the difference the following April.
Do a financial inventory as well. Those currently receiving structured settlement or annuity payments can consider selling them through a company like J.G. Wentworth. The lump sum of cash can then be used to pay down your card balances. Donate plasma a few times a months and add those earnings to the monthly payment you were already making. Taking your debt-to-available down from 50 percent to under 20 percent in a few months will easily add 100 or more points to your credit score.
Getting a New or Used Car Loan
One of the easiest and fastest ways to find the best deal on a new or used car loan is applying online with a lender. Online lenders today offer both new or used car loans and car refinancing giving you the option to refinance an existing loan and lower your monthly payment and interest rate. Companies like OpenRoad Lending offer competitive rates and offer loans to all types of customers, regardless of credit score. You apply and once approved, you can download all of your loans documents and be on your way to buying the new or used car of your dreams the very same day. If you choose car refinancing, you can apply, sign all of your loan documents and begin the savings immediately. On average, customers are saving over $100 per month off their existing auto loan payments and in some cases you can actually skip a payment or even get cash back to pay off more expensive credit cards or debts.
New Type of Credit
This one is kind of a double-edged sword, but it works in the long run. If you have bank cards and store cards only for credit, take out an installment loan. Again, new credit and types of credit influence 20 percent of your score. The bad part is that the initial inquiry will drop your score by a few points. But when you get the funds from the loan, use it to pay down your credit cards. That way you not only establish new credit and new a new credit type, but also improve your debt-to-available ratio.
Doing all the above will increase your credit score substantially, and get you the keys to your dream car in a matter of months.