ASK THE AUTO LOAN GURU
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by Kelly Eargle

Question: I am about to graduate from college. When I do, I would like to buy a car to replace the clunker I currently drive.

I'll need a loan. The thing is, about two years ago, I got way behind in paying my two credit cards. My parents had to bail me out. Since then, I have kept those credit cards tucked away in a drawer. I haven't used them - I'm kind of afraid to - but a friend told me I should start using them again to establish credit before trying to get a car loan. What's your advice? - Alexa G.

Answer: The dormant credit cards shouldn't be your first concern.

First things first, check your credit report. A credit report, by the way, is different than a credit score. The report shows credit obligations, activity and payment performance. A credit score is an assessment of your creditworthiness.

A great place to go to find your credit report (for free) is www.annualcreditreport.com. In Colorado you are entitled to a free credit report each year. When looking at your credit report, make sure that there are no mistakes on it. In addition to credit card payment problems, you should be aware that bouncing checks - if they go to a collection agency - can also be reflected on your credit report.

The next step would be to talk to your bank or credit union lender and pre-qualify for a loan. Your lender will then be able to tell you your credit score and advise you of problems, including if you need to start using those credit cards again. Don't wait. Do it now, so you'll have time to make any changes before you need the new car.

Because you have already used your credit cards, you have already established credit. It is not necessary for you to use them all the time; once or twice is enough for you to establish your credit. Again, your best steps are to review your credit report, and ask your lender to review your credit rather than guessing yourself.

There are several things you should keep in mind with respect to using credit cards and achieving higher credit scores.

For starters, keep track of your spending; you should keep your statement balance below 50 percent of your available credit. If you can't do this, then you should try to adjust your credit limit upward. If you have good credit you can call your credit card company and raise your credit line. This will help you keep your statement balance below 50 percent of your available credit.

Another way to increase your credit is to establish various types of credit. For example, if you are paying rent, have that reported on your credit report. If you do need to rebuild your credit, it can take up to a year or more so the best time to start rebuilding it is now. The key is to TALK TO YOUR LENDER AND GET PRE-APPROVED. Your financial institution is there to help you achieve your financial goals.

Kelly Eargle is an auto financing expert with the Credit Union of Colorado, which has a local branch in Thornton.

Email your question to EargleK@cuofco.org. Not all questions will result in publication.