Before applying for a car loan, it's wise to check your credit standing. That will give you a pretty good indication of where you stand in the eyes of potential lenders.
Many people assume that few car shoppers have good enough credit to qualify for the cheapest, lowest-interest auto loans, but that's not so. According to Experian, one of the big three credit bureaus, about two-thirds of all new car loans last year were granted to people with "Prime" or better credit standing, and 44 percent of borrowers were in the highest category, called "Super Prime" in Experian's parlance.
You can obtain your credit information from any or all of the three big credit-reporting agencies, also called credit bureaus, which monitor consumers' credit information. (The others are Equifax and TransUnion.) They all track your past and present borrowing behavior and generate a three-digit score that supposedly summarizes your creditworthiness.
By law, you're entitled to one free report from each of the three major credit bureaus every 12 months. To order your reports, go to annualcreditreport.com.
There are plenty of promotions on the internet these days that offer to give you your credit score free of charge. They come from banks, credit unions, and credit card issuers, including big names such as Bank of America, Chase, Citi, and Discover.
Discover Financial Services recently started offering free FICO scores through its Credit Scorecard program, even to people who aren't customers. You'll need to hand over some personal data, including your Social Security number.
When you get your reports, scrutinize them for errors, because you can challenge any mistakes you find. And it's smart to correct any misinformation that could be depressing your score.
Though the reports may be free once a year, the scores often are not. You'll wind up paying about $7 for each from the credit bureaus themselves and about $20 each from other services.
In addition to loan and credit card payment history, the credit bureaus track your total available credit, current debt, and how much of your available credit you're using, among many other factors. You may also find negative information, such as late payments, missed payments, judgments, write-offs, and bankruptcies.
Your scores will almost certainly differ from one agency to another. Each may gather information from a slightly different list of creditors that report your payment activity to them, and they use different algorithms to turn your credit activity into a score.