Your credit and your rate

Lenders set your rate by how likely they think you are to pay the loan back, and your credit history is the main way they judge that. The same car at the same price can cost thousands more for someone with a lower score. A few weeks spent on your credit before you shop can be worth more than an afternoon of haggling.

What goes into a credit score

A credit score is a number worked out from your credit report. FICO, the company behind the most widely used scores, says your payment history and how much you owe count the most. How long you have had credit, how much new credit you have applied for, and the mix of credit you have count for less.

You do not have one score. There are FICO Scores and VantageScore scores, each in several versions. Many car lenders use a FICO Auto Score, a version built for car loans that runs from 250 to 900 instead of the usual 300 to 850. So the score in your banking app may not match the one the lender sees. That is normal. What matters is the report underneath, because every score is built from it.

Why a few points of APR matter

The difference between rate tiers can look small on paper. Over five years it is not.

Check your credit report before you shop

You can get your credit reports from all three big credit bureaus, Equifax, Experian and TransUnion, free every week at AnnualCreditReport.com. That is the official site. Other sites with similar names may try to sell you something. Looking at your own report or score does not lower your score.

Start a month or two before you plan to buy, so there is time to fix mistakes. Look for:

• Accounts you do not recognize, which can be a sign someone has used your name.
• Late payments on bills you paid on time.
• The same debt listed twice, often once by the original lender and again by a collector.
• Wrong balances or credit limits, and accounts shown as open that you closed.
• Old negative items that should have dropped off. Most negative information can stay for seven years, and some bankruptcies for ten.

If something is wrong, dispute it with the credit bureau that shows it and with the company that reported it. Send copies of your proof, not originals, and keep a record. The bureau generally has 30 days to look into it. The FTC’s page on disputing errors has sample letters.

Small moves that can help

• Pay every bill on time from here on. Payment history counts the most.
• Pay down credit card balances if you can. High balances against your limits pull scores down.
• Hold off on opening new cards or loans in the months before you apply for a car loan.

None of this is fast, and there is no trick that removes accurate information. The FTC warns that no one can legally remove accurate, timely negative information from a credit report, so be wary of anyone who charges to promise otherwise.

What to do next

1. Pull all three of your credit reports at AnnualCreditReport.com.
2. Mark anything that looks wrong and dispute it with the bureau and the company that reported it.
3. Pay down card balances where you can, and keep every payment on time.
4. When your reports are right, get a loan offer from a bank or credit union. The next lesson, get a loan offer before the dealer, shows how to shop rates without hurting your score.

Sources

• AnnualCreditReport.com, the official site for free credit reports (opens in a new tab)
• FTC consumer advice: Free credit reports (opens in a new tab)
• FTC consumer advice: Disputing errors on your credit reports (opens in a new tab)
• FTC consumer advice: Fixing your credit (opens in a new tab)
• myFICO: What’s in your FICO Scores (opens in a new tab)
• myFICO: FICO Score versions, including FICO Auto Scores (opens in a new tab)
• Consumer Financial Protection Bureau: Credit reports and scores (opens in a new tab)