Time For A New Car?
Several years ago when I was broken down on the side of the interstate in my 92 Jeep Cherokee I thought to myself “My next car is going to be brand new so I don’t have to deal with this gain!” I knew that I would need to finance as I was just a twenty something with a low end painting job, but I was hopeful that I would be approved. I was quite ambitious for a boy with little to no credit reported or open trade lines.
Fast forward to later that evening; I sat in the Nissan dealership for hours, hoping one lender would overlook my credit score and provide me with anything! Spoiler: No lender would even consider me and my abysmal credit score. At that moment I knew that I would have to go about this a different way if I ever wanted to even be considered for financing and began my research over how exactly credit worked.
Understanding Your Credit
First off, I had to get a hold of my credit report and see just exactly what was going on. My credit adviser directed me to Free Credit Hub where I was able to sign up for credit monitoring and finally see what was dragging my credit! I was greeted with a cacophony of different numbers, phrases and names that filled the pages and made my stomach drop. My adviser walked me through each line on the report and explained that there were multiple categories that made up the report. Those categories were:
1. Payment History- 35% of your credit score is based on your past bills and how they were paid.
2. Amounts Owed- 30% of your credit score is based on the available credit card limit you’re using and the amount you owe across your accounts.
3. Length of credit history – 15% of your credit score is determined by the credit history you have built. This is based on the average age of your accounts along with a few other factors. The longer the history, the better the results!
4. Credit mix – 10% of your score is from the mix of revolving credit (credit cards) and installment credit (car loans, mortgages, etc.) you have.
5. New credit – 10% of your credit score comes from new credit accounts that you have established.
Time To Build!
Alright, now that I know what exactly makes up my credit, it is time to start building it up! I took 3 easy steps to start building positive credit and the foundation for a strong credit score.
- Lowering My Card Utilization– When I got my first credit card I was told to never use more than 50% of the allowed credit and I would be fine. If we look at our credit utilization like a grade card, a 50% utilization rate is a solid F. 30% is about a C rating and the lower you go the better your rating. Keeping your utilization under 10% is an A rating and is sure to build your credit the fastest.
- Becoming An Authorized User– Becoming an authorized user is by far one of the easiest ways to build credit and is kind of like passive income. If you are listed as an authorized user on a trusted family members card, their history is listed on your report as well and you don’t even have to use the card! Be sure you work with someone you trust because the negative history will be placed on your report as well.
- Pay Your Bills On Time- Paying off those balances on time is extremely important when building credit as it provides positive credit history and establishes a exceptional trade line. Late payments are one of the largest discrepancies on most Americans credit report!
Your Car Loan Will Help Build Credit.
After about 6 months of building up my credit, I was able to acquire financing toward a new vehicle. You don’t need to have perfect credit to acquire a car loan, but it will affect your financing options and future payments. The wonderful thing about this loan is that it establishes another line of installment credit to your account. As long as you are making your payments on time, this installment credit will soon become a wonderful trade line that builds a long credit history. In the end it is all bout finding the right lender for you and managing a positive ascending credit score. If done correctly, you will be on the road that that fabled 800 credit score!
Do you have questions about your credit report? If you would like to speak with one of our attorneys or credit advisors and complete a free consultation please give us a call at 1-800-994-3070 we would be happy to help.
If you are hoping to dispute and work on your credit report on your own, here is a link that provides you with a few ideas on how to go about DIY Credit Repair.