Bad credit can impact your life in more ways than you can imagine. The apparent effect is that you will find it increasingly difficult to access financial products such as car loans from traditional institutions.
In cases where a lender is willing to approve your car loan application, you are likely going to pay higher interest than if you had a good credit rating.
Good credit enables you to be in a strong position to negotiate the best rates with lenders. Bad credit, on the other hand, makes you risky for lenders and so you will pay a higher price.
Even with bad credit, you can still qualify to get a car loan. There are loans for people with a bad credit history; you may have to shop around to find those with the best terms for you.
How do you avoid bad credit in the first place and avoid any embarrassment on your next car loan apllication?
Pay your bills on time
Paying your bills on time is the simplest way to avoid bad credit. Yes, it is that simple.
Payment history is one of the most significant factors influencing your credit score. A single late payment could cause a few points to drop in your credit score.
To stay ahead of bill payments, you may want to consider noting them in your calendar or set reminders to help you remember when each payment is due.
Alternatively, you can set up a regular bank transfer allowing bills to be paid on time each month.
Avoid maxing out your credit card
30 percent of your credit score is calculated on how much available credit you are using.
If you are spending too much on credit, you will be hurting your credit score.
Maxed out credit cards can affect your ability to access loans. When you apply for loans, lenders will often check your credit records to see your credit utilization.
If your balance is nearer to or has exceeded the credit limit, the lender will take that as a sign that you already have more debt than you can handle.
Don’t apply for several car loans too quickly
As a rule of thumb, try to avoid applying for new car loans in quick succession.
For each application you make, a new inquiry is made on your records, which could potentially affect your credit score.
When a lender sees too many loan requests on your record, they will begin to wonder if you are taking on too much debt and consider you a risky borrower.
Pay your bills in full
You can decide to pay only the minimum amount required on your car loan without incurring any penalties. The downside is that your debts could accumulate and spiral into bad credit pretty quickly.
Use your credit responsibly and only buy things that you can afford to repay at the end of the month.
Pay off credit impacting loans first
While you should strive to repay all your loans, there are times when you will have to choose which loans to pay off first.
In such cases, always start with the loans that have the biggest impact on your credit score first. Prioritize repaying crucial bills such as credit cards, mortgage, and so on, that greatly affect your credit rating.
That is not to say you should ignore the other bills. Eventually, if you do nothing to repay them, they, too, could hurt your rating.
Talk to lenders if you are going to be late for a payment
Bad things in life happen. Things can go wrong and you find yourself unable to make payments on your car loan. Quickly call your creditors and talk to them about your situation.
Usually, they will offer you a better repayment plan that is more flexible. This way, you get more time to put your affairs in order before the next due date, thus saving a bad credit report.