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CREDIT SCORE

How to Get a Low Interest Rate Car Loan

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You don’t have to pay a mint for a car loan.

You have seen the advertisements for low interest rate auto loans and wonder if you qualify. Car financing rates of under five percent are common today, but are typically available only to those with the best credit ratings. You can get a low interest rate car loan by taking the following steps.

car loanVisit MyFico.com to obtain your three-digit credit score. Pay the fee, plug in your personal information and review your score. If your score is 700 or higher than skip to the fourth step. If it is in the 600s range or lower, then move on to the next step. See: MyFico.com

Review Your Credit Reports

Your credit score is based largely on the information found in your credit reports. Three credit bureaus collect information about your finances, job history, your spending habits and other personal information. With scads of data coming in, some of that information may be old or wrong.

Visit AnnualCreditReport.com to obtain your reports from Experian, Equifax and TransUnion. Your reports are issued free through this site and can be obtained once annually at no charge to you. See: AnnualCreditReport.com

Clean Up Your Credit

Examine your credit reports carefully. If information in a report is incorrect, notify the respective credit bureau. Sometimes, a credit bureau will claim that you have made late payments or have a line of credit open that does not belong to you. Wrong information should be brought to the attention of the credit bureau and corrected.

Once notified, the credit bureau has 30 days to address your query or automatically expunge that information from your files. You can request a follow up credit report for free once the corrections have been made.

Car Loan: Apply For Credit

It may take up to 60 days for your credit score to reflect the corrected information. Your score should rise and if it tops 700, you should qualify for a low interest rate car loan.

Keep in mind, however, that there are other parameters creditors consider including your current income and your ability to repay a loan. If your score remains low, continue to work on raising it before applying for new credit.

Talk With Your Lender

You can also talk directly with a lender before applying for credit. This can be useful if you wonder if you will be approved for a car loan and you don’t want to risk rejection. Your lender, which can be your current banker, a credit union representative or other financial professional, can offer guidance on what interest rate you will pay on a new car loan. For instance, you may be able to garner a better rate if you put more money down or settle for a shorter-term loan such as 36 months instead of 48 or 60 months.

If your credit score is below 600, indeed if it is 580 or below, then you have bad credit. At this point, it will take you extensive work to raise your credit score, likely taking many months to well over a year to reach a favorable credit rating. You may still be eligible for a bad credit car loan, but do not expect to receive a low interest rate car loan if your credit is bad.

Typically, bad credit car loans carry a rate of 10 percent or higher, well above the prevailing rate for consumers with excellent credit.Always know your credit score and understand how that score can affect your ability to secure new credit. A low interest rate car loan may be within your reach, provided that you are willing to work on fixing lingering credit problems.

See Also — Credit Clean Up Before You Buy Your Next Car

How Are Insurance Scores Determined?

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If you have not heard of your insurance score, you are not alone. An insurance score, like a credit score, is based on information derived from your credit reports. Insurance companies have found that there is a correlation between the way you handle your credit and future accidents as well as your likely insurance claims. Although credit reports are used to establish both credit scores and insurance scores, there are also some important differences.

Do you know how your #insurance score is calculated? (Click to Tweet)

what is your insurance scoreYour credit score is based largely on your ability to repay what you have borrowed. Your insurance score goes beyond your credit report to look at the behavior of policyholders with similar credit temperament who have filed claims with the insurer. You should know that insurers set their own insurance scores, consequently your score will vary from company to company.

A credit score, such as one from FICO, is used by 90 percent of US lenders. That score is based on five factors: your payment history, the amount of your debt, the length of your credit history, new credit and the types of credit. Loan approval and terms are based on your credit score.

Your insurance score will also look at the same factors, although your insurer likely isn’t interested in your income information or job history, criteria that banks and other lenders look at when deciding whether to extend credit to you or not. Even so, the better your credit score the higher your insurance score.

Insurance Score Determination

Auto Trends reached out to the insurance industry to glean more information about insurance scores. Kristofer R. Kirchen, president of Advanced Insurance Managers, LLC, in Tampa, Florida, directed us to the National Association of Insurance Commissioners (NAIC) website to learn how scores are determined.

Credit-based insurance scores are nothing new, arriving on the scene in the early 1990s. According to FICO, some 95 percent of auto insurers and 85 percent of homeowner insurers use credit-based scores. However, not all states allow credit-based scores, thus it is important for consumers to check with their state insurance department to learn what their state permits.

insurance scoreYou should also know that insurance companies may only consider your credit-based insurance score as “one factor in its underwriting process” according to the NAIC. If you are seeking coverage for a vehicle, the insurer will consider the make, model and age of your car as well as the age of the drivers, the miles driven annually and your zip code. Yes, you can ask your insurer if an insurance score was factored to underwrite and rate your policy. You should also ask your insurer what risk category you were placed in after your quote was received.

Obtain Your Score and Improve It

Kirchen noted that CreditKarma.com provides both your credit score and your insurance score for free. You need to register with that website, by providing an email address and a password to track that information. This writer has been using Credit Karma and found his insurance score by clicking on the “view all my scores” button. In this case two scores were presented: an auto insurance score and a home insurance score with only a small numerical difference between the two.

If your insurance score is low you can improve it the same way you can raise your credit score: by using your credit wisely, paying your bills on time and reducing your debt. Kirchen also advises consumers to clean up collection activity as found in their credit reports. You can obtain one free copy annually of all three of your credit reports by visiting AnnualCreditReport.com.

Now About That Claim

It is important for you to know that placing a call to your insurance company to report an incident when there is no damage to either vehicle should always be avoided. That call will show up on your claims history even though no pay out was made noted Glenn Jacobs of the Jacobs Agency in Knoxville, Tennessee. Your insurance score will suffer and as a consequence you may be charged a higher rate for auto insurance.

Don’t do THIS when contacting your #insurer about a claim. (Click to Tweet)

See Also — Your Insurance Score and Insurance Premiums