It takes credit to get credit, especially if you need to borrow a lot of money for a big purchase like a car. You may be able to piggyback on someone else's good credit rating for your auto financing. Otherwise, you can build your own credit rating to qualify for a vehicle loan on your own merits.
Co-Signers
Banks and finance companies usually let you use a co-signer if you have no credit history of your own. The co-signer needs a good enough credit history to qualify for the auto loan. That person is legally responsible for repayment if you default, so you ruin your co-signer's credit if you make late car payments or stop paying altogether. The other person is also responsible for repossession costs and the difference between what you owed and the amount of money the bank gets from the car's resale, Bankrate columnist Steve Bucci warns. The negative information shows up on your credit reports, too, damaging your fledgling credit history. Use a co-signer only if you are confident you can make timely payments.
Establishing Credit
You can delay your car purchase for a year and concentrate on building some credit while saving up for your down payment. Putting down a lot of money makes it easier to get a loan, because the financed amount is lower. Open an account with a gasoline company or retail store, as they are easier to get than major credit cards like Visa or MasterCard, the BCS Alliance financial site explains. Get a secured credit card, if necessary. Banks give major brand cards in exchange for a deposit that covers your credit line, according to Bankrate writer Pat Curry. Use your new accounts for 12 months, always paying on time, then look for a car loan.
Checking Your History
You may have a credit history, even if you never opened an account, due to credit bureau errors. Experian, Equifax and TransUnion make mistakes regularly, with errors on up to 80 percent of credit reports, Bankrate warns. AnnualCreditReport.com is a consolidated website run by the three bureaus under the Fair Credit Reporting Act. You can get free copies of your reports through the site once each year, according to the Federal Trade Commission. Look for incorrect information, which could be for someone with a similar name, or even a sign of identity theft. Dispute questionable items with the bureaus through their website forms before applying for your car loan.
Refinancing
You may find a lender who is willing to take a chance on you, even though you have no established credit, in exchange for a high interest rate. Take the loan temporarily, then refinance it once you build up an excellent payment record. You can save hundreds of dollars with a better interest rate, Edmunds automotive site writer Philip Reed advises. Check your credit reports before searching for a new loan to ensure your history is accurately reflected.
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