Debt Free and Still Can’t Get a Decent Interest Rate? Things You May have Missed

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So I finally got my finances back on track, but as life would have it my car broke down and I needed to finance a new one. I go to my local bank to apply for an auto loan, when the bank representative explains that if I do obtain a loan through them, I am looking at very high interest rates…. But why?

I spent the last two years rebuilding my credit and paying off my debts. I simply couldn’t wrap my head around how suddenly I was still labeled as someone having bad or less than perfect credit?

Reluctantly, I ran home and printed out the latest credit report from each bureau. I also did some research online to see what I could find out about credit ratings after paying off debt. And much to my dismay, I found out a few things about my own personal credit score I didn’t know.

  • I had closed out too many accounts
  • I had a few errors on my report that needed to be disputed

Closing Out Too Many Accounts

As I paid off each of my credit cards, I decided I didn’t need to have them anymore. I wanted to downside the amount of plastic I used and therefore decided it was just easier to close these accounts out. However, what I didn’t know was that this would affect my credit in a negative way.

According to experts from Bankrate, your FICO score is calculated utilizing a number of factors. Your payment history, the amount of debt owed, the length of your credit history, and the types of credit accounts you have. Therefore, by me closing out all of my credit accounts, I essentially made it look as if I don’t have much credit, and the credit I did have was in negative standing (as the payment history stays on your account whether the account is opened or closed).

Errors on Credit Report

After reviewing my credit report a bit more carefully, I realized that there were a few discrepancies on the report that needed to be addressed. The first incident was an auto loan that was showing as negative when I had paid the account off more than 5 years prior, and the other was for a credit card account that I had paid off but was still showing as owed.

I chose to use credit repair services in these instances as the original creditors has since gone out of business and the accounts had been sold several times…. I was having a hard time trying to complete the disputes myself. I ended up finding a company that would handle the disputes for me. You can check out the reviews for Lexington Law to see how this process works and how other consumers benefit from these kinds of services.

After getting the errors accurately updated and/or removed from my account, I decided to wait a few months before trying to reapply for a car loan. Low and behold, I was able to secure a great financing option with zero down and a very low interest rate. (I was even able to use my old car as a trade in)

As you can see, it is very important to check your credit report on the regular basis. Never assume that because you paid off your debts that everything is on the up and up. It is always better to be safe rather than sorry.

photo courtesy of LendingMemo.com.

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