Understanding Credit Score

Before you purchase a car, you should first secure financing. However, you should have a good understanding of what your credit score is before you start this process. The average credit score is between 739 and 680. To give you a better understanding of your credit score, here is a breakdown of its five components.

This is the most important factor in determining your credit score - it comprises 35 percent of the final score. Payments that are more than 30 days late are going to have the biggest negative impact on your score. On the other hand, consistent on-time payments are the best way to improve your credit.

This constitutes 30 percent of your score. Credit utilization refers to how much of your total available credit you are using. For example, if you have a credit card and student loans, this factor looks at the balance of these accounts compared to the maximum amount available to you. If your accounts are maxed out, this could be a big hit to your credit score.

Since 15 percent of your credit score is calculated from the length of your credit history, the longer you have had credit, the more this factor will work in your favor.

The next 10 percent of your credit score is based on how recently you opened new credit accounts. If you suddenly apply for a bunch of credit accounts at the same time, this could reflect poorly on your score, since it usually indicates that you are having a cash flow problem.

The final 10 percent is based on your mix of credit. Lenders like to see that you can handle a variety of credit accounts, like credit cards and installment loans.

If you'd like to learn more about financing your next vehicle, visit our finance department at Lee Kinstle GM Sales & Service.