Check Your Credit First

After budgeting for an auto purchase, check your credit up front, before you set foot in a dealer's showroom. It is a good idea to begin this process months before you plan to purchase. Because if you have incorrect or outdated information that's lowering your score-and, therefore, raising the interest rate you'll have to pay-it can be removed, but it takes at least 60 to 90 days.

There are three national credit-reporting agencies, Equifax, Experian and TransUnion. Your credit report from these agencies is free thanks to the Federal Trade Commission that ruled every American is entitled to a free credit report from each agency every 12 months. See www.annualcreditreport.com.

The FICO score, named after Fair Issac Corp., the firm that developed the scoring model back in the 1950's, compares the information in your credit report to what's on the credit reports of thousands of other customers. FICO scores range from about 300 to 900. The higher the score, the better a credit risk you will be considered. The credit score is based on five factors: past payment history, outstanding debt, length of credit history, how much new credit has been sought recently and the types of credit.