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In our financial lives, credit ratings are critical. Increasing your credit score can help you receive more cheap lending alternatives, whether you’re looking for a personal loan, a mortgage, or a credit card. The same regulations apply when it comes to car financing. Rather than trying to figure out what credit score will get you a loan, it’s better to figure out what credit score will get you the greatest bargain on a car loan. Let’s find out more.
What is a Good Credit Score in Canada?
Credit scores can be as perplexing as they are important. We’re frequently left wondering if our credit score is good enough to qualify us for that dream home, car, or other purchase. A credit score in Canada is a three-digit figure that ranges from 300 to 900. It informs potential lenders, banks, and financial organisations about your financial stability.
If you’re attempting to figure out what constitutes a good credit score in Canada, keep in mind that a good score is one that qualifies you for the best interest rates. It also allows you extra room to shop if you so desire. With a low credit score, you can still receive a car loan, but it will be much more expensive.
Lenders use your credit score to determine your creditworthiness and whether you’re a risk they’re willing to take on. If you have a negative credit score, you are considered a larger risk, which is why your interest rate may be significantly higher. Most lenders and organisations will utilise the following parameters when determining your credit score:
- Poor 300–560
- Fair 560–660
- Good 660–725
- Very Good – 725 – 760
- Excellent – 760 – 900
How Can You Check Your Credit Score and Report in Canada?
Many individuals believe that obtaining your credit report from one of the two major credit agencies, TransUnion or Equifax, will also provide you with your credit score. This isn’t always the case, however. However, checking your credit report for inaccuracies and precise reporting is still necessary to ensure that your credit score is always accurate. A free monthly copy will be sent to you by your credit reporting bureau. Your credit score will not be affected if you request this report on a monthly basis.
Your credit score is frequently requested separately from your credit report. Your request may be subject to a fee from both credit bureaus. It’s also worth noting that each credit reporting agency has its own unique rating methodology that varies from one to the other. Find out why your credit score varies based on where you check your credit.
It’s worth noting that you can frequently get your credit score for free from your bank, financial institution, or any major financial technology company like Credit Karma or Borrowell.
What Is The Importance Of Your Credit Score For A Car Loan?
Having a good credit score will assist you in numerous ways when purchasing a car. When it comes to the best vehicle loan rates, people with a decent credit score are usually the ones that get them.
You must be prepared before visiting a car dealership. Make sure to look over your credit report carefully so you know what to expect. If your credit score is low, this will allow you more time to determine whether you want to buy a car now or later when your credit score improves. With time, you’ll be able to take advantage of lower rates and receive the best deal on your new buy.
What Is the Optimal Credit Score for Getting a Car Loan?
In Canada, car loan providers search for borrowers with credit scores in the mid-600s. Lenders often like to see a credit score between 630 and 650.
As a result, there is some flexibility in terms of your credit score criteria when applying for a car loan. Depending on your lender or bank, they may be more stringent and look for higher credit ratings in specific cases. Alternative lenders, on the other hand, are frequently willing to tolerate lower credit scores. Some dealerships can also help borrowers find financing to meet their specific credit needs.
Don’t be concerned if your credit score is below 630. You may still be able to get a car loan. When you’re shopping around, it’s important to keep your mind open to the idea your loan may cost a little more. It can take some time to find a lender that will work your low score. Find out more on obtaining a loan with bad credit here.
How Can You Improve Your Credit Score?
There are many ways you can begin boosting your credit score before you consider applying for a car loan. Check out these guidelines to get you started.
Pay Your Bills On-Time
Since your credit history plays a massive role in your final score, it’s essential to pay your bills on time. If you make sure you at least pay the minimum on your loans and credit cards and don’t make late payments, this should have a positive impact on your score.
Follow The 30% Rule
If you have numerous credit cards that are all maxed out, this rings alarm bells to your potential lenders. It’s vital to ensure you keep outstanding balances on your credit cards below 30% of your overall limit. This will demonstrate to your banks or financial institutions that you’re not low on cash and that you’re responsibly for handling your finance.
Keep Credit Card Accounts Open
It’s a common myth to think that if you close your credit card accounts, your credit score will increase. That’s not necessarily true. Whereas closing your credit card accounts will help you to fight the temptation of spending, it will affect your credit utilization ratio.
For example, if you have three credit cards and only one is maxed out, you’ve used less of your total available credit limit. But if you only have one credit card that one is maxed out, you have no available credit, therefore your credit utilization ratio is very high and your credit score will be negatively affected.
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