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Credit Score Myths To Be Wary Of When Buying a CarBy Christine Harrell One of the first steps you should take when car shopping is to find out your credit score. By researching your creditworthiness before approaching Virginia Beach auto dealers, you have a good idea of how much car you can afford. This is more important than ever since lenders are tightening their loan requirements. The complex equations used to create your credit score are a closely guarded secret and consumers and industry analysts alike have come up with a host of explanations that range from common sense to utterly bizarre. We want to expose some of the leading myths about credit scores before you make a mistake. Closing Credit Accounts Even many Virginia Beach auto dealers and lenders will tell you that closing unused credit accounts will increase your score. In fact, the opposite is true. Closing accounts hurts your score for two reasons. One factor that increases your score is your history of borrowing. A borrower who has been making payments for ten years is more creditworthy than one who has been paying for just a year. If you close an old account it can cause you to appear as though you have little credit history. The other reason is that closing accounts make your existing debt loom larger in score calculations. Your amount of debt is not as important as your percentage of debt. As you close accounts you are reducing your available credit so any existing debt is now a larger percentage of your borrowing power. This makes you seem overextended. Paying off accounts is good since it lowers that percentage but don't close them once they are paid off. Income And Credit Scores Another leading myth is that only the wealthy have good credit scores. Income is not considered at all in credit score calculations. The score is an estimate of how likely a person is to pay a loan and as the newspapers tell us every day, rich people default on their loans too. There is no reason a person with a low income can't get a car loan at a good interest rate. Although income won't affect your credit score but that doesn't mean it won't affect your loan. The lender will use your income to determine a credit limit so you don't borrow outside of your means. Virginia Beach auto dealers want to put you in the right car for you, and your income is one factor in finding that right vehicle. Watching Credit Doesn't Hurt Credit Pulling your own credit report is called a 'soft' check and doesn't affect your score at all. Even a 'hard' check from lenders or Virginia Beach auto dealers will have only a very small effect on your score. Shopping for loans is the sign of a smart consumer. If you need help getting your credit in shape, don't be afraid to get it. Credit counseling has no affect on score calculations and the advice you receive may improve your score in many ways. About the author Author is a freelance copywriter. For more information on Virginia Beach Auto Dealers, visit http://www.beachford.com/. |
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