How an Auto Loan Can Help Your Credit

Your personal credit rating will affect nearly every large purchase you make in your lifetime. From a home to a car - and even your auto insurance - your credit score will determine whether you're approved for an application and how much money you'll spend. Consumers who use their credit responsibly enjoy many benefits, among them preferable loan programs and lower interest rates. It's possible to improve your credit score, even by doing simple things each month. Anyone applying for Georgia car loans should also look at this time as an opportunity to improve their overall creditworthiness.

What is a credit score?

Your credit score, also called your FICO score, is a three-digit number that designates how likely you are to repay your debts. The higher the number, the better your credit. Scores range from 300 to 850, and consumers with scores higher than 700 are generally considered to have good credit. If your credit score is lower than 700, you may find it more difficult to get a loan or a low-interest rate credit card.

How to improve your credit score

Absolutely! Your credit score is affected by literally dozens of factors - from how often you pay your bills on time to the percentage of available credit you use. Consumers who have had difficulty paying bills on time, or who have overextended themselves with excessive credit-card debt, can rehabilitate their credit score. Ways to do this include:

• Paying bills on time, every month
• Resisting the urge to take out unnecessary new accounts, such as department-store credit cards
• Keeping balances on existing accounts low
• Borrowing only the amount you need and living within your means

You will find that, in time, applying these techniques will gradually improve your credit score. Defaulted accounts and other "bad debts" will remain on your credit report for seven years.

Smart borrowing techniques

Now that you know what a credit score is, and how you can improve it, you can begin to implement smart borrowing strategies. It's almost impossible to go through life without seeking a loan or other financial assistance; but there are smart ways to go about it. In fact, those consumers with high credit scores often have several types of accounts and an extensive loan history. Applying for and managing credit is good for your score - keeping the score high and your reputation intact requires following these steps:

• Borrow only what you can afford: By staying within a budget, you'll be less likely to overextend yourself financially. For example, when you purchase a car it might be wise to evaluate the options and "goodies" on the vehicle: If you can't afford the navigation system and leather seats, don't include them. You'll find that by living within your means, you'll pay off your debts faster and will enjoy the freedom associated with owning your property free and clear.
• Pay a little extra: Make sure your auto and home loan have no prepayment penalties. If they don't, then try to work in a little extra money each month when you send your payment. By paying a teensy bit extra - even $50 - you'll pay down the principal balance faster, and the term of your loan will decrease.
• Get a savings account: Open a savings account, and set up an automatic-deposit system. By doing this, you'll focus more on saving and less on spending - and then you might not need a credit card for incidental purchases down the road.
• Check your credit: Once a year, get your credit report (you also can get your credit score for a small fee) and carefully review it. By doing this, you can verify that all the information is accurate. But you'll also see the benefits that come with having your financial life well managed. You have good credit!