If you’re preparing to purchase a vehicle, you’re likely hearing lots of talk about credit scores. Your credit score will play an important role in your application for a loan. This number is used by lenders to get an idea of how likely you or another borrower are to pay off the loan. As a result, your credit score may get you a better deal or a worse deal depending on how good it is. But how is your credit score made up, and how can you estimate what yours might be?
Tropical Ford is well aware of these and the many other questions that come to the surface when a person is financing a vehicle for the first time. Here we’ll look at ways to estimate what your credit score might be like so you can prepare to negotiate your loan.
The company FICO rates credits on a scale of 300 to 850. This is the most popular scale and likely the one you will see around most. The higher the score, the better the credit. FICO uses several factors to calculate the score, the biggest one being payment history. If you have always paid your bills on time, then you’re off to a good start credit score-wise. But if your payments have been late, you can expect a bump in your score.
The second biggest factor is “amount owed” which looks at what debt you’re in compared to the credit you have. If you have a credit card that’s close to being maxed out, that’s going to have a negative impact on your score.
Fifteen percent of the equation comes from your payment history. The longer you’ve been developing your credit, the better. The smallest two factors are “new credit” and “types of credit used.” If you have lots of new credit—i.e., multiple credit cards—that looks bad on your credit score, where if you have multiple types of credit—like a student loan and a credit card—that makes you look more responsible and reflects well on your score.
Ultimately, you’ll want to get your proper score by buying it from FICO or checking with your bank before you start negotiating a loan. However, knowing what makes up a credit score is a good start to understanding both how to improve it in the future and what financial position you’re in now.