Most car buyers spend hours comparing models, colors and trim levels.
Far fewer spend ten minutes looking at their own credit report.
That report can matter as much as the car itself.
It helps decide whether a lender approves your loan and how much that loan will cost.
A small error on your report can mean a higher rate for years.
The good news is that checking your credit is free and fairly quick.
This guide explains how to get your reports, what to look for, how to fix mistakes and how to use what you learn when you shop for financing.
Why Your Credit Report Matters for a Car Loan
Your credit report shows how much money you owe and how you pay your bills.
The Military Consumer guide to credit history explains that businesses use this information to decide how to treat you.
It can affect whether you get a loan and how much the loan costs.
It can also affect insurance, renting an apartment and getting a credit card.
For a car loan, the cost shows up in the annual percentage rate, or APR.
The APR measures the cost of credit as a yearly rate.
Even a modest difference in APR adds up over a loan that lasts five or six years.
That is why the same car can cost two buyers very different amounts.
Step 1: Get Your Free Credit Reports
There are three nationwide credit bureaus: Equifax, Experian and TransUnion.
Each one keeps its own report on you, and they do not always match.
You can get your reports for free at AnnualCreditReport.com, the official site for free reports.
According to Military Consumer, the three bureaus currently let you get your report online once a week from each bureau.
Those weekly reports are in addition to the free yearly report the law guarantees from each bureau.
You can also request the yearly reports by calling 1-877-322-8228.
On the site, you answer some questions and give your address, Social Security number and date of birth.
Military Consumer suggests asking to show only the last four digits of your Social Security number on the report.
Be careful with lookalike websites.
Type AnnualCreditReport.com into your browser yourself instead of clicking an ad or a link in an email.
Step 2: Read Each Report Carefully
Set aside time to go through each report line by line.
Look at all three, because an error may appear on only one.
- Personal details. Check your name, addresses and employers. An address you never lived at can be a sign of a mix-up or identity theft.
- Accounts. Make sure every loan and credit card is yours.
- Payment history. Look for late payments you do not recognize.
- Balances. Confirm that the amounts owed look right.
- Collections and public records. Check that any listed debts are accurate and belong to you.
Write down anything that looks wrong.
Note which bureau's report it appears on.
Step 3: Dispute Anything That Is Wrong
Fixing an error before you apply for a loan can save you money.
Military Consumer lays out a clear process.
- Write to the credit bureau. Send a letter to the bureau that has the wrong information.
- Write to the business. Send a letter to the company that supplied the incorrect information.
- Ask for the correction. Explain what is wrong and ask them to fix it.
- Send proof. Include copies of documents, like a bill that shows the correct information. Keep the originals.
The bureau and the business have to look into it.
If they find the information is wrong, they must correct it and write back to tell you what they found.
If you are still not satisfied, you can add an explanation to your file about the issue.
Disputes take time to resolve.
If you plan to buy a car in the next few months, check your reports now rather than the week before.
Step 4: Know Your Score Before You Shop
A credit report and a credit score are not the same thing.
The report is the record, and the score is a number based on that record.
Military Consumer notes that it can help to know your score before you try to buy a car or a house.
Some banks, credit unions and card issuers show customers a score for free.
Service members can ask a personal financial manager for help getting a free score.
Knowing your score helps you judge whether a rate offer is reasonable.
It also helps you avoid surprises at the dealership.
Step 5: Compare Financing Before You Visit the Dealer
Once you know where your credit stands, you can shop for a loan with confidence.
The Federal Trade Commission notes that dealers, banks, credit unions and finance companies all offer car loans with different terms.
The FTC advises buyers to shop around, compare offers and negotiate the best deal they can.
Getting a loan quote from your bank or credit union first gives you something to compare against.
If the dealer offers a better rate, you can take it.
If not, you already have a choice in hand.
Watch the total cost, not just the monthly payment
Financing increases the total cost of a car because you also pay for credit, including interest.
The FTC warns that low monthly payment offers often come with longer loan periods and higher interest rates.
That can make them much more expensive overall.
Before you sign, the FTC suggests getting clear answers to these questions:
- What is the exact price you are paying for the car?
- What is the total sales price with financing, meaning all monthly payments plus the down payment?
- What is the finance charge, the dollar amount the credit will cost you?
- What is the APR?
- How many payments will you make, and how much is each one?
Compare these numbers across offers, not just the monthly amount.
If Your Credit Needs Work
Sometimes a credit check shows that now is not the best time to borrow.
That is useful information, not a dead end.
You might choose a less expensive car, save for a larger down payment or wait a few months while you pay down balances.
Paying bills on time and keeping balances low help build a stronger history over time.
A bigger down payment means you borrow less, which lowers the finance charge.
Be wary of anyone who promises to erase accurate negative information from your report.
Accurate information generally stays on a report for a set period.
You can dispute errors yourself for free, as described above.
Protect Your Credit While You Shop
Car shopping involves sharing personal information.
Give your Social Security number only to a lender or dealer you have confirmed is real.
Do not send it by text or email to a seller you met online.
Keep copies of every credit application and loan offer you receive.
Military Consumer also notes that active duty service members and National Guard members can get free electronic credit monitoring from the three bureaus.
Monitoring scans for activity on your credit reports, which can help you spot fraud early.
The Bottom Line
Your credit report shapes whether you get a car loan and what it will cost.
Get your free reports from all three bureaus at AnnualCreditReport.com.
Read them carefully and dispute any errors in writing, with proof.
Learn your score, then compare loan offers from banks, credit unions and the dealer.
Judge each offer by its APR and total cost, not just the monthly payment.
A little homework before you shop can save you real money over the life of the loan.
Sources and Further Reading
- Military Consumer: Knowing Your Credit History. Source for free weekly and yearly credit reports, the phone number, the dispute process, credit monitoring and knowing your score before buying a car.
- Federal Trade Commission: Buying a Used Car From a Dealer. Supports the advice on comparing financing offers, the cost of long loans and the questions to ask before signing.
- Military Consumer: Vehicle Financing. More on how car loans work and what to compare.