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Past transgressions and used transmissions

Dear Dr. Don,
I currently have a credit score of 544, which I know is not very good. I am 22 years old and in the past I did not know much about credit. I am completely out of debt now (debt combined was over $5,000) and have paid off my car loan through my credit union. Would I have a better chance of getting a used car loan for $5,000 through my local credit union, or should I use the on-line loan route for people with bad credit? In view of my past debt, is there anything I can currently do to improve my credit worthiness?
Jonathan Jalopy

Dear Jonathan,
Your credit union is the place to start. It will let you know where you stand and will be more likely to work with you on a new loan. While you're checking out your credit union, you can also look at what terms the Internet lenders offer to people with poor credit histories.

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With a credit score of 544, you don't have much downside left. The good news is that you can rebuild your credit over time by staying current on your bills and managing your credit accounts and credit applications. Almost all negative information on your credit report drops off the report after seven years, but it won't take seven years to get your credit score out of the 500s and into the 600s.

Every time you apply for credit, the loan application is reported on your credit report. It's one thing if you're shopping for a car loan or a mortgage. If you make multiple inquiries in a short period of time (over three to four weeks) for a secured loan, your credit score won't be hurt. It'll be clear that you're comparison shopping and you won't have multiple mortgages or car loans outstanding. Multiple credit card applications send a different message, making it look like you're desperate for credit -- and lenders hate lending to desperate people.

Bankrate has partnered with myFico.com to feature "Estimate Your FICO Score" on Bankrate. MyFico.com also has a credit score simulator you can use when you purchase your credit report and score. The sample simulator shows how steps you can take in managing your credit can affect your credit score.

-- Posted: Feb. 27, 2004

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What's it take to raise my credit score?
Credit report inquiries
Financial advice glossary
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