5 Ways You Can Improve Your Credit Score to Buy a Vehicle

It is okay to feel defeated after receiving the news that your credit score has dropped into the poor range. The reality that you are less likely to qualify for low-interest rates with bad credit can bring you down. The thought of having trouble getting a loan altogether, making that new vehicle you need seem unattainable, is stressful. Luckily, there are some easy ways to make your way back to the top. In fact, applying for bad credit car loans in Alberta can get you your next vehicle and be the first step in improving your credit score. To maintain a good rating, you might want to try out these five useful strategies.

#1 - Monitor Your Payments

Payment history is one of the most influential contributing factors to your credit score. We are not just talking about your credit card payments. Believe it or not, forgotten mortgage and car loan payments can affect your score, and so can all your other bills.

Were you unhappy with your previous cell phone carrier, cancelled the account, and then refused to pay the final bill? How about the outstanding vet bill for your dog's surgery a while back? Maybe you even have a few fines that you buried in the past. All missed payments have the possibility of making their way to a collection agency that can then report them to the credit bureaus. When you refuse to pay the money you owe, your credit score suffers the most, so do yourself a favour and pay your bills on time so you can buy that new vehicle.

#2 - Be Smart With Your Credit

The total amount of credit you use is the second most influential factor contributing to your credit score. Maxing out your available credit negatively affects your credit score, whether you have a single credit card or a number of credit lines open. The credit utilization ratio is one way that your credit use can be calculated and monitored. It is the amount of debt you have versus the amount of credit you have available to you.

Say you have two credit cards, one with $10,000 available to you and another with $5,000; both have a balance of $2,500 on them. With those balances, you are using about 33% of your available credit. If you only had one credit card open, with a $15,000 credit line and a $5,000 balance, your credit utilization ratio would still be at 33%. Although less may seem to be better, it is not necessarily the best case when it comes to the number of credit lines you have. You want to focus on getting your credit use as low as possible and keeping it there, preferably under 30%. If you can manage that, you are in good shape and on the road to credit recovery and sustainability.

#3 - Old Credit Is Good Credit: Keep It Alive

Although it may be tempting to cancel some of your credit cards, possibly even your oldest one, after you get the devastating news about your poor credit score, we recommend that you do not. It will likely harm your credit score. If you find it necessary to cancel a few credit cards, start with the newest ones first.

The length of credit history on an account matters significantly. The longer you have had an active credit line, the more beneficial it is for your credit score. It provides more insight into your credit use than newer lines will. Even if you are contemplating consolidating your debt, you need to consider at least keeping your oldest lines of credit open and active. You can keep a minimum balance on it and use it for single purchases here and there, but it is not recommended to close it out if you are trying to increase or sustain your credit score.

#4 - Diversity is Key: Vary Your Credit

When you were younger, with a single credit card that you managed like a professional, did you ever wonder why your credit score never really went very far up in the ranks? Well, that is because your credit history looks far better with a variety of credit types on it. Once you financed your first car or took out your first personal loan, you probably even saw an increase in your credit score. That is because having a diverse credit history shows that you are capable of multiple credit responsibilities.

We are not recommending you open up a bunch of different credit lines. Nor do we think you should increase your credit utilization ratio unless absolutely necessary or take on more debt than you can handle. But once you pay off some of your debt, if you do not have a variety of credit lines already, we recommend you spruce up the types of credit in your history when it is practical to do so. Whether it be a car loan from us—even bad credit car loans count when properly reported—a mortgage, or another type of credit line, mix things up!

#5 - Limit New Credit

As beneficial as old credit can be for your credit score, the opposite goes for new credit. Too many credit applications or inquiries can be detrimental to your credit score. It can make you seem desperate and appear to the credit bureau and other lenders that you are trying to live beyond your means. This does not mean you should not apply for new credit when your credit score is low, but you should apply wisely.

Limit the number of new credit applications as much as possible. If you are in the market for a new car, you should rethink opening a new credit card and taking out a personal loan at the same time. However, sometimes, you might need to apply for new credit with different lenders before you get approved. Each inquiry from a car dealership or credit card lender can impact your score. By working with IDrive Canada, we can help you explore your options and shop around for the ideal car loan without having multiple inquiries on your credit score in a short period.

Follow the Road Toward a Healthy Credit Score

Nobody likes to learn that they have a bad credit score. Although maintaining a healthy credit score is as easy as it sounds, life can still happen. Sometimes we need to open more credit lines for unexpected but necessary expenses like a new refrigerator or washing machine. Sometimes we become so busy with work and taking care of our families that bills get unnoticed or become forgotten. Here at IDrive Canada, we want you to know that we understand.

Having bad credit is not the end of the world. You can work on fixing your credit by knowing and understanding how your score is calculated and by making the right decisions to work your way back to the top. Plan on paying every bill in a timely fashion and focus on lowering your debt, but remember to keep your oldest credit line open and active. Then, when the time is right for you, apply for a different type of credit, like a car loan. But if you are in a rush for a new vehicle, we can help you with that.

IDrive Canada is an auto finance department preferred by Albertan drivers because we identify with the needs of our clients and give everyone the benefit of the doubt. If you have been looking for bad credit loans, look no further. We are here to help our drivers, no matter what their credit situation is.