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Buying a Car? Make your Credit Report More than Fair

Christine Spencer

Auto Loan Expert

 If you’re like most people, you’ll need to secure a loan to be able to buy a car. According to, just 1 in 10 people have the means to pay cash for a new vehicle. Thus, most new- and used- car buyers need to finance their purchase.

If your credit score is only “fair,” you could find it more difficult to be approved for a loan. Even if you are approved, you’ll likely pay a higher interest rate than someone with very good credit. However, don’t throw in the towel just yet. There are steps you can take to improve your chances.

Mind your Credit Score

If you need to finance a new or used vehicle, pay close attention to your credit score. Lenders use it to determine the rate you'll pay. Higher scores equal better rates. Because the amount and length of auto loans continues to grow, finding the cheapest possible financing is increasingly important.

The major credit bureaus that calculate and report your score to their clients aren't perfect. Mistakes are made, both by the reporting agencies themselves, and by the current creditors who report to them on your activities. Some consumers have poor credit through no fault of their own; data from the Federal Trade Commission indicates that at least five percent of people have credit reporting mistakes that impact their credit scores. In this case you may consider bad credit auto loans as an option.

To determine whether there are problems with your credit report, contact each of the large reporting companies – Equifax, Experian and TransUnion – to obtain a copy of your report. By law, you’re entitled to one free copy per year from each. In theory, all three reports should contain the same information, but that’s not always the case. You need to monitor all three to be sure they’re accurate.

You have a legal right to challenge your credit report if it's incorrect or incomplete. The Fair Credit Reporting Act (FCRA) requires that if you successfully challenge a discrepancy, the reporting agency must correct the error within 30 days.

Challenge Credit Report Discrepancies

To increase your chances for a successful challenge, you'll need to contact the credit reporting company in writing. Include copies of all documents that support your challenge. Your letter should clearly identify each item in your report you dispute. If a credit agency deems your claim frivolous, it must notify you within five business days. Once the correction is applied to your report, your credit score should improve in just a few months. Credit scores have risen by as much as 100 points after an error is corrected.

Beware Common Credit Report Errors

As previously noted, credit reporting agencies occasionally make mistakes. Here are some of the most common ones.

Mistakes reporting balance owed: If you've paid off an account, but your credit report still shows a balance owed, the creditor most likely failed to tell the credit bureau the account was paid in full.

False reports of bill collections: Sometimes, credit reports show collection accounts due to the fact the collection company that purchased the debt didn't tell the reporting agency the debt has been paid off.

Remaining black marks: The FCRA requires derogatory items to be dropped from your report. In most cases this should occur within seven years.

Identity theft: The appearance of accounts you didn't open may be a result of identity theft.

Holes: Credit reports can be missing major credit activities that demonstrate your creditworthiness.

Improve your Credit Score

In addition to correct errors in your credit report, there are a few things you can do to give your credit score a boost.

Pay down your credit card balance. You should pay down your debt to less than 30 percent of your credit limit.

Use an old credit card. Unused old accounts won't have a positive impact on your score unless you use them occasionally.

Don't close any accounts. It looks better to have more credit extended to you than what you are using.

While it’s typically more difficult, you may be able to find a car loan regardless of your credit score. That is, as long as you have steady income. The question is whether you’ll be willing to pay a premium in terms of a larger down payment and a higher interest rate. Improving your credit score from fair to good can potentially save you thousands of do