So you found the used car you want to buy, but don’t have all the money so you opt in for a loan. With sub-prime credit it may be difficult getting approved with a decent interest rate. However there are several things you can do to increase your odds of approval.

First, make sure you have no collections on your credit report. This is important. It is true that as soon as you pay them off, your credit score will get lower for a bit (due to the “recent activity” penalty). However when going in for a loan approval, what looks better? A person with unpaid debts, or a person who looks like he was having trouble at one time, but made a point to fix it?

Second, make sure any credit cards you have you are paying on time, and make sure there balances are less that 51% of your credit limit. Having credit cards in this state not only good to lenders, but are prime credit score boosters.

Third, try to have a maximum of three credit cards (although two is ideal). If you can afford it, cut out your newest credit cards (if you have more than three). The longer you have an account with someone, the better it is for your FICO score. Also stay away from store credit cards. The problem with them is that they open a new account every time you make a purchase, and every time an account is open your score goes down. Chances are you are not going to keep any one account open for very long, so the age factor that helps your score isn’t going to help you with store cards.

Topics Credit Cards, Credit Report, FICO, Loan, Loans, used car