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5 Things to do Before You Apply for a Car Loan

Keen to get behind the wheel of your dream car? We don’t blame you. You might think the first step is getting pre-approved for a car loan, but there are a few actions that you can take to ensure your pre-approval process goes off without a hitch. Taking some to time to prepare prior to submitting a pre-approval application will save you time, and trouble. Here are 5 simple steps you can do before applying for pre-approval.

1. Learn and analyze your credit score

The first and most important action you can take is finding out what your credit score is. Simply knowing your credit score is not enough – it’s helpful to know what your credit score means. Check out this post explaining the credit score range in detail. Remember that when your credit score is calculated, it is today’s snapshot of your credit score. Just like a balance sheet is a snapshot of the financial position of a company, your credit score is a snapshot of your financial condition at that time. A computer calculating your credit score doesn’t care about any personal factors affecting your credit score, the numbers are all that matter. Bear this in mind when you are spending – the last thing you want is your score being negatively affected while a lender is reviewing it. If you don’t know your credit score, or what it means, give us a call and we’ll be happy to explain it.

2. Check your credit reports

Since your pre-approval is based on your credit reports, it’s a good idea to look them over for any misinformation or errors that could hurt your score. In Canada, you can obtain your credit reports in the mail or online, in some cases free of charge. You can dispute credit items that are inaccurate, out of date or incomplete. Three firms you can get your credit reports from are EquifaxTransunion and Experian. Each report is broken down into sections, including personal information, accounts in good standing and potentially negative items. Under the Fair Credit Reporting Act (FCRA), agencies are responsible for correcting errors. When writing a dispute letter, be sure to provide a full explanation of the error(s) with relevant documentation. Keep track of correspondence, including when documents were sent and received. Keeping a paper trail is helpful in recording communication.

3. Know the details of your credit reports

Checking credit reports may seem tedious, but it can make all the difference. There are many credit report details that the majority of the public is unaware of. For example, a provision made in the Fair and Accurate Credit Transactions Act of 2003 (FACTA) allows consumers to dispute negative (but accurate) information, if they were never notified of the problem. Of course, many people would never know about this – that’s where we come in.

4. Pay off outstanding debt

Easier said than done, we know! However, if there are small debts that can be repaid, now is the time to do it. After all, lenders are looking to see if you can repay debts. Repaying these delinquent accounts will improve your chances of getting pre-approved. Settling these accounts sooner will make all the difference, since the older the account, the better your credit report will look. 4-6 months is a good time frame to have between paying off the account and applying for a loan approval. It’s worth saying that you should avoid incurring any new debt before you apply for your loan.

5. Bring down your debt-to-income ratio

A debt-to-income ratio dictates how much of your income is going to pay your debts. If your debt-to-income ratio is high (more than about 12%), a lender will challenge your ability to make regular payments. There are a few ways to reduce this ratio. Firstly, you can increase your income. If you were considering asking for a raise, or getting a second job, now is the time. On the other hand, you can reduce your debt. Evaluating credit card statements to consolidate where your greatest debts are coming from is a good place to start. Moreover, paying off any existing debts (no matter how small) will help. The debt-to-income ratio is a popular target for lenders, the lower it is, the better your credit score.

You’re now ready to get pre-approved! It may seem irksome, but taking the time to complete these steps can make the difference between a weak credit score and an okay credit score (which can be difference between pre-approval and rejection!). For more information on credit scores and the pre-approval process, do not hesitate to give me a call at 1-888-290-4811 or apply online. I look forward to getting you pre-approved and on the roads!