Step one in your car-buying adventure: Shape up your credit

Step one in your car-buying adventure: Shape up your credit

(ARA) - It's normal to feel a range of emotions when buying a car - everything from excitement to anxiety. Yet for all the emotion involved in purchasing a vehicle, it's important to remember that the process needs to stay very logical. When you keep that in mind, it's easy to understand the connection between a good credit score and more favorable auto loan terms.

It's likely you'll need to finance your vehicle purchase, especially if you're buying new. A good credit score can help reassure potential lenders that you'll be a good credit risk - and make them more inclined to offer you a lower interest rate for your auto loan.

Car sales in February 2012 were nearly 24 percent higher than the same month in 2011, and SUV sales were nearly 12 percent higher, according to a Wall Street Journal report . With more people buying vehicles, a good credit score will make you better able to compete for the best loan terms available.

Here are some ways to help ensure your credit is in the best possible shape before you buy a car:

* Check your score - While you may take advantage of your annual free credit report, that report doesn't include a credit score. Since a credit score will have an impact on how lenders perceive your credit worthiness, it is a good idea to understand where you stand. So, before you set foot on a car lot, you can learn about your credit score with enrollment in a site like If you have a good credit score, you'll likely have a leg up on negotiating better loan terms. If your score is low, you may want to make some adjustments and decisions before applying for an auto loan.


* Take action - Pay off credit card bills, set up automatic payments for recurring debts so you're never late and never miss a payment, keep paid up credit cards open (this improves your ratio of credit available to credit used) and avoid opening any new credit accounts in the months leading up to your car purchase.

* Shop around for the best loan deal - You can find many sources of vehicle financing, from your neighborhood bank or credit union to online lenders and even dealer financing. Explore your options before you go car shopping. Never rely on the dealer to give you the best loan terms. Instead, secure your own financing before you go shopping, and then give the dealer the opportunity to match or beat those terms.

Once your credit is in shape, follow these simple steps to find the car that's right for you:

* Decide what car you want. You can narrow this down to a couple of options or even just one. Think about how you'll use the car and the features it absolutely must have. Do you need an automatic transmission and a third row? Next, consider the features you would like to have, but could live without if you had to. Do you dream of a sunroof or a sporty spoiler?

* Research pricing information. You can find ample information online about vehicle pricing from resources like Kelly Blue Book or Edmunds. Learn the difference between the sticker price and the invoice price, and how dealers get from the lower invoice figure to the higher one on the sticker.

* Test drive the car more than once and at more than one dealership. Don't be afraid to ask dealers to beat each other's offers. Competition can be healthy - for you and the dealers.

* When it's time to close the deal, be prepared to negotiate. You and the dealer have the same objective in mind - to get the best price for the car. Of course, your best price and his are likely two different numbers, so you'll need to negotiate toward a number you can both be happy about.

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