New to Credit? Here's What You Need to Know Before Getting a Car Loan

Credit scores don't start at the top or the bottom of the pack. When you're new to the world of finances, debts, and loans, it can be hard to know just where to start getting an auto loan, but we've got some direction you can take at The Car Connection!

Middle of the Road Credit

Taking the first step to start something new can be tough, but rest assured that you're not the only one going through these struggles. When it comes to taking on credit for the first time there are a few basics to keep in mind:

  • FICO is the most commonly used credit scoring model among auto lenders in the U.S. They rank your credit profile on a scale of 300 to 850.
  • According to Experian, one of the nation's three major credit bureaus, most people who are newly able to take on loans and other credit simply don't have a credit score when a lender requests your credit profile for the very first time. This means someone has to take a chance on you in order to kick off your credit history.
  • Once you've requested a loan, credit card, or even applied for an apartment rental, and have been approved, you begin building credit, but you don't start at zero or even 300. You typically begin with a credit score in the low to mid-range on the FICO scale.
  • If you manage your first line of credit responsibility, making each payment on time, you could be well on your way to a higher credit score when you need to take on another line of credit.
  • From your first opportunity to take on credit, the power to control your credit score is in your hands.

In order to know just how to keep your credit-building momentum, it's important that you know what goes into your credit score. It's more than just a random number assigned to you by a guy in a cubicle.

Since Joe Schmoe in accounting isn't handing out random three-digit numbers to people applying for credit, just how do they come up with that magic number that means so much?

Why Is That My Credit Score?

Your credit score is more than a three-digit number. It's actually the answer to a complex math problem that's always changing. This is because your credit score is the sum of five different factors, each weighing in for a percentage of your credit score.

Depending on how good or bad the information recorded in your credit reports is, your credit score goes up or down. Some pieces of your credit reports weigh in more heavily than others, so keeping them chock-full of accounts in good standing is essential.

Here's how your credit reports break down to make up your credit score: payment history (35%), amounts owed (30%), length of credit history (15%), credit mix (10%), new credit (10%).

  • Payment history is the heavy-hitter when it comes to your credit score – get those payments made on time! A missed payment drops your score faster than an on-time one builds it, so be careful how you handle your budget.New to Credit? Here's What You Need to Know Before Getting a Car Loan
  • The second biggest part of your credit score comes from your amounts owed. Lenders look more favorably on people who take on the credit they need and work to make steady, timely purchases and payments. Taking on too much credit at once, or maxing out all your lines of credit and then not using it again until you've paid everything off, isn't recommended. Instead, focus on keeping your credit card balances below 30% of their limits, and working to pay off your loans in the shortest amount of time possible.
  • Once you've got that credit, hang on to it. Building lines of credit into long-standing accounts can help improve your credit score for years to come. Even if you don't often use that first credit card, and it's not costing you anything to keep, keep that line of credit open so it can keep working for you. If you close it, it can decrease your length of credit history.
  • New credit and credit mix refer to taking on multiple types of credit responsibly. Don't open accounts unless you need the credit, and try to vary the types of credit you're getting mixing in installment loans such as auto loans and mortgages, with revolving credit from credit cards.

The Credit Improvement Fast Lane

A car loan checks the boxes on all the factors that make up your credit score. You need to build your credit profile when you're new to credit, and an auto loan is a great way to start. It gives you the opportunity to build a long history of positive payments since they typically last between four and eight years (48 to 84 months), and it's a new line of installment credit.

If this sounds like a pretty good place to start off your credit journey, you may need a lender that specializes in working with new borrowers. When it comes to auto loans, it can mean working with a subprime lender.

They assist borrowers who have no credit, bad credit, or who have negative accounts such as bankruptcy and repossession on their credit reports. The good thing about them is that they know the difference between a low credit score due to a thin credit file and a bad credit score due to financial mismanagement.

So now all you need to do is find a subprime lender. But how? That's where we come in. The Car Connection has a nationwide network of special finance dealerships that work with subprime lenders. Grab your chance at kickstarting your credit the right way, while also getting the car you need. Simply fill out our fast, free, no-obligation auto loan request form and we'll get to work connecting you with a local dealer.


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