How do I fix my credit for a new-car loan?

Dear Driving for Dollars,
My credit is poor and my car is old. I know that I’ll need to replace my car soon. What’s the fastest way to improve my credit so I can get a better interest rate on a car loan?
— Eva

Dear Eva,
It’s good to hear that you are looking to improve your credit before you are forced to buy a new car. Unfortunately, there is no fast fix to improving your credit score, so start working on improving your credit now. Plan to keep your car for a while if you want to get the best interest rate possible on a car loan for its replacement.

With that in mind, start by staying current on all your payments because lenders report payments that are 30 days late or more to the credit bureaus, and this can cause a big drop in your credit score. Next, start paying down your debt to each of your lenders. Aim to get to a point where you have no more than 20 percent outstanding of the credit extended to you before you start applying for any car loans. This is called the debt-to-credit ratio. For example, if you have $20,000 in credit available to you in total, you’ll want to have no more than $4,000 in debt outstanding. As you pay off credit card debt, don’t close the account, even if you don’t plan to use the credit card. This will help lower your debt-to-credit ratio.

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