If you’re struggling financially due to a burdensome car loan, you have options. In many instances, refinancing your car loan can help you save a significant amount of money, infusing much-needed cash into your monthly budget. However, the extent to which you can save money by refinancing is heavily impacted by your credit score. In general, the better your credit score, the more likely you are to qualify for lower interest rates when you refinance.
If your credit score isn’t very strong, there are steps you can take to boost it prior to refinancing. This will be well worth the effort, since raising your score even a moderate amount can often help you qualify for a better interest rate that will equate to significant savings over the lifetime of your new car loan.
The following tips will help you improve your credit score so that you can maximize the savings benefits associated with refinancing your car loan.
The first step to take is to review your credit reports to make sure there aren’t any errors present that are bringing down your score. You can request a free copy of your credit report from each of the three major credit reporting bureaus (Experian, Equifax and TransUnion). Review each report to see if any information contained in them is incorrect.
When reviewing these reports, check for the following types of mistakes:
If you notice any errors that may be pulling down your credit score, you can dispute them with the credit bureau and have them removed from your credit report. Approximately 25% of Americans have mistakes on their credit report, so this becomes an important first step to take. In many situations, it can provide an easy way to raise your credit score.
Your payment history is the most important factor used to determine your credit score. Once payments are 30 days late, they may be reported to the credit bureaus and if this happens, it can negatively impact your credit score. To make matters worse, these late payments can stay on your credit report for up to 7 years.
The best way to ensure you make all payments on time is to set up automatic payments for the minimum amount due. If you set up automatic payments, just make sure your bank account always has sufficient funds to avoid overdraft fees.
If you do miss a payment by more than 30 days, call the creditor right away. Make a payment as soon as you can and ask the creditor if they would refrain from reporting the missed payment to the credit bureau. They may or may not grant that request, but it never hurts to ask.
Your credit utilization is the second most important factor impacting your credit score (after payment history). This figure refers to the percentage of your credit limit used at any given time. The ideal figure to target is a credit utilization below 30%. This will signal to creditors that you’re able to responsibly manage your credit obligations.
There are several ways to lower your credit utilization:
Anytime you submit an application for a new credit account (credit card, line of credit, mortgage, car loan, business loan, etc.), it results in a hard pull on your credit report. These hard inquiries temporarily decrease your credit score. It can take anywhere between a few months and two years for your credit score to rebound after a hard inquiry. The more hard pulls you have on your credit, the more it may negatively impact your credit score because banks interpret these inquiries as a sign that you may be taking on more credit than you can manage.
If you’re trying to raise your credit score, limiting the number of hard inquiries is important. Therefore, avoid applying for new credit if at all possible until you’re ready to refinance your car loan.
Avoid closing any old accounts that have been paid off and aren’t being actively used. The age of your credit accounts is another factor impacting your credit score. Having older accounts will positively impact your score, so keeping these older accounts active will help as you try to boost your credit score.
These unused accounts also help you maintain a lower credit utilization. Closing these accounts would remove this amount of available credit from your profile, resulting in a higher percentage of your credit being in use. As discussed earlier, having a high credit utilization will negatively impact your credit score.
Once you’ve taken these steps and boosted your credit score as much as possible, you’ll be ready to look into auto refinance options. At iLending, we make the process easy and hassle free. Our unique You First Approach™ has been designed with your needs in mind, ensuring you have a great experience at every stage of the refinancing process.
As part of this approach, you’ll be paired with one of our loan consultants who will discuss your refinancing goals with you to understand your specific needs. We’ll then put in all the leg work for you, comparing loan options from our network of over 50 nationwide lenders. Your loan consultant will identify the options that most closely align with your goals and review them with you.
Once you’ve decided on the best car loan refinance option, your loan consultant will guide you through the application process and assist with all paperwork to ensure everything goes smoothly. Your loan consultant will also follow up to make sure your existing loan is paid off and that you’re happy with your new loan.
On average, iLending customers save $145 per month when they refinance their auto loan. This savings can create space in your monthly budget to pay down outstanding debt, further improving your credit score over time.
Apply now to get the car loan refinance process started.