The next article in our blog series on things that people thinking of buying a car should do before they visit a dealership addresses the importance of checking credit reports.
According to a 2019 study,over 85% of new car purchases and over 55% of used car purchases were financed. The average amount financed for new cars was over $32,000, and used car buyers financed an average of more than $20,000. It is not unusual for interest rates for buyers without good credit to be 19% or higher. That means that a used car purchaser with credit problems can pay $11,000 or more in interest charges over the course of a 5-year loan. By contrast, someone with a credit score of 700 or more could get approved for about 5.25% and save $8,200 or more over the life of the loan.
Obviously, a consumer's credit score can make a big difference in your cost of credit and your monthly payment. Buying a decent car without good credit can be tough for other reasons as well. All too often, dealers charge prices that are well above book values, and that is before the cost of conveyance fees and other "extras" are added to the price. Consumers without good credit frequently wind up paying too much for cars of questionable quality.
About half of credit reports have inaccurate information, and many of those errors can impact the credit score. And, many consumers may not be aware of negative information on their reports. So, it is crucial that consumers find out their credit situation BEFORE they start shopping.
The best time to check your report for errors is at least three months before you want to purchase a car. That way, there is time to dispute any inaccurate information. The best place to get your report is www.annualcreditreport.com. Be careful of commercial sites, because they often have strings attached, but this site is the real deal: one free copy of your report from the three major reporting agencies per year.
There are two commercial sites that, as of the date of this writing, offer credit report information without cost. One is the website for one of the three major bureaus: Experian, available at www.experian.com . Free copies of the reports from the two remaining major bureaus, Equifax and TransUnion, can be obtained at www.creditkarma.com . The catch to using these sites is that you must register and you will receive offers for financial services such as credit cards while interacting with those sites. Both Experian and Credit Karma offer easy to use smartphone apps, and they offer suggestions that can help you to improve your scores.
One advantage to using these commercial sites is that they will provide you with your credit score. That information is not included in the reports provided by the bureaus through www.annualcreditreport.com . You can, however, purchase access to your score by paying a fee on that site.
Unfortunately, in most instances, there is no legitimate way to remove accurate but unfavorable information from a credit report. Some businesses, including some law firms, charge consumers fees to "correct" their reports. We do not recommend those "services", most of which charge significant fees for no real value and some of which are outright scams.
If you find inaccurate information on your report, you are going to need to dispute it with the credit reporting agency. You can find information on how to do that on our website. You may also learn of forgotten debts that may be lowering your score, and it might be a good idea to settle those accounts at least 2-3 months before you apply for credit.
"Auto Loan Debts Reach Record Highs", Matt Tatham, Experian, July 19, 2019. https://www.experian.com/blogs/ask-experian/research/auto-loan-debt-study/