Recently Fox Business published an article that talks about current troubling trends in the auto industry. It appears that auto industry, together with some of us who have experienced financial pains in the past few years, are going back into old, unhealthy financial habits.
What do we mean by that? Well, just listen to some of the car commercials on the radio during your drive to and from work and you’ll hear advertisers offering loans on brand new (yes you read it right) vehicles to people with low credit scores.
The commercials appear to be sympathetic in nature, claiming to understand the financial pains of people who may have made some mistakes in the past, or, who due to a poor economy, lost their income for a season.
According to the Fox Business article, the average prices for new cars continues to rise, which forces people to borrow more money and over a longer period of time. As unfortunate as it is, many car dealers are starting to use the subprime loans approach in order to boost sales.
Is purchasing a brand new vehicle and financing it for 5-7 years the right step, especially for those who have a bad credit score? We would argue that it is not only a bad financial decision, but one that can end up costing you more money – money you should be allocating to other necessities like debt repayment and building a solid financial backbone for you and your family.
With the average new car payment reaching new heights of $471 per month, most of us would be much better off driving our vehicles, even if we have to invest few hundred dollars here and there for repairs, while using that cash for other priorities.
So what can you do in order to start repairing your credit? Instead of getting into a long-term new car loan, here is what we recommend you focus on:
– Use any extra cash you have in order to catch up on late payments.
– Make sure you start paying all your bills on time!
– If you’ve recently missed payments on any of your bills for the first time, pick up the phone and ask the credit card company or your utility company to wave the late fee as a courtesy. Many will do that as long as this is your first time offense.
– Get a secured credit card from your bank. Use it for a while to establish a good report with your bank and then ask for an unsecured credit card with a low enough limit to keep you away from trouble. Use the card responsibly and pay it off in full every month.
– Keep paying off your debts in order to create a healthy ratio between your credit limits and your debt.
As you can see, there are plenty of other healthy ways to heal a bad credit score. As you choose to take these steps you will see that you’ll not only improve your credit score but your overall financial position. Sure it can be fun to drive away with a new car, but do so at the right time and for the right reasons.
Fixing your credit score isn’t the right reason to get a new car. Loading up on extra debt isn’t the best way to solve this problem. Stick to the basics and look into the specific areas of your credit score that are contributing to your low marks, and take steps to address those issues.