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Few Myths Regarding Auto Loans and Credit Rating Part II

With the high amount of prominence that is usually given to the credit rating while approving auto loans (whether it is by lenders, banks or borrowers) there have been a number of myths being associated with them. The following lines provide some information on different myths and what is the truth regarding them:

  • Many lenders believe, and suggest their clients, that closing prior bank account can improve one’s credit score and allow them to get auto loans easily. Bank accounts are an important part of one’s credit history and closing the account reduces the credit history which further impacts the credit score. Moreover, there is a percentage of available credit which affects the credit rating. Closing amounts reduces the available credit (i.e. the debts are same but the credit is reduced) which further hampers the credit rating.
  • There is a myth that checking the credit report can hurt one’s rating. If several checks are done by auto loans’ providers then it can affect the rating a little but individual checks never hurt the rating. An individual has been provided with three free checks from the three credit bureaus. Also, one can do multiple checks as long as multiple checks aren’t done in a two week period.
  • Several borrowers believe that a big income can increase their credit rating which can further enhance their chances of being approved for auto loans. However, the income doesn’t affect the rating as credit score is calculated by the ability to pay back the owed amount and not by the   amount of money earned. The lenders consider the income to make sure that the borrower isn’t going for a car which is much more than what he/she can afford.
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