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5 Ways to Improve Your Credit Score for a Car Loan or Preapproval

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Your credit score is one of the most important tools in your financial toolbox — it’s like a master key that unlocks new options. By taking a few simple steps to increase your credit score, you can get access to preferential loans, easy preapprovals, favorable payment terms and more. Find out how to keep a finger on the pulse of your credit score with these best practices.

Low vs. high score

Credit scores are computed by FICO (the Fair Isaac Corporation), and are calculated using various factors such as payment history, total amount/balances of debt, length of accounts, mixture of credits/debts and new accounts opened. Creditors utilize your credit score as a base to determine your creditworthiness and ability to pay debt. The FICO credit score is a number on a scale from a low of 300 to a maximum of 850. Typically, a score below 580 is sub-par, a median score of 670 is average and a score above 800 is excellent.

A low credit score can negatively impact your car loan preapproval process (or any loan approval, for that matter). Banks and credit unions typically charge higher interest rates if you have low or bad credit. That’s if you can even get approved for a loan. On the other hand, consumers with good or excellent credit often enjoy lower interest rates and better terms.
  • Low credit: With a low credit score, lenders view you as a greater risk for default and charge a higher interest rate to compensate for the risk. However, this doesn’t necessarily mean you won't be preapproved for an auto loan.
  • High credit: Having good/excellent credit greatly reduces your risk of default. That raises your chance of qualifying for better financing options and vehicles. With excellent credit, you can qualify for those special financing promotions reserved for car buyers with higher credit scores.
But there's more. You can use your high credit rating to negotiate better rates and favorable terms during the preapproval process. A high score gives you leverage to shop around with different lenders for the lowest interest rate and to negotiate a better price from the dealership.

Before shopping for your next car, find out what your credit score is. Visit and use their calculator to see what rate you might qualify for based on your credit score.

How to improve your credit score

Check your credit report at least annually to make sure you're aware of your current credit rating. Also, view your existing accounts and develop a strategy to improve your score. Although it takes time, these five basic steps can significantly boost your score.
  1. Pay your bills on time. Paying your bills on time, every time, maintains your credit score and improves it over time. If you don't, your creditors will report past-due payments to the credit bureaus. This will affect your credit history and lower your score.
  2. Improve your debt-to-credit ratio. Requesting a credit limit increase on your existing credit cards can improve your credit score. This works if you raise the limit, but don't increase spending — your debt-to-credit ratio will be much more favorable to lenders. This only works, though, if you already have a decent credit score as you most likely won’t be approved for a credit line increase with bad credit. If your credit isn’t the best, you can pay down existing debt to improve your debt-to-credit ratio. Start with revolving debt, such as credit cards, to make the biggest impact on your credit score.
  3. Dispute incorrect information on your credit report. While reviewing your credit report, you might find erroneous information. If so, you should dispute any errors with the credit bureaus. Once the disputes have been corrected, your score is sure to jump up.
  4. Don’t apply for any new credit. Each time you apply for new credit, lenders pull your credit report, which negatively affects your score. Keep in mind that increasing your credit limit on existing credit cards does not affect your score as much as applying for new lines of credit.
  5. Pay delinquent accounts. If you are aware of any late, past-due or delinquent accounts on your credit report, it's important to take a few months to get your accounts current. Taking the time to review your credit report at least once a year helps you manage your accounts and avoid delinquencies that lower your score.
Request a copy of your free annual credit report from and take control of your credit rating.

Power Financial Credit Union is here to help

Power Financial Credit Union is ready to guide you through the car-buying process. As a member, you'll have access to personalized offers that fit your unique financial situation. You'll also benefit from our free educational resources and one-on-one financial wellness reviews. During these completely confidential sessions, you'll experience quality personalized service from our trusted advisors, and together we will create a customized action plan to accomplish your financial goals.

Contact us or visit us at any of our locations in South Florida to find the best auto loan and get that perfect vehicle.