The New FICO Score That Could Help Car Buyers

Buying a car with bad credit is possible—it’s just going to cost you. You’ll probably have a higher interest rate and require a bigger down payment, and you may have a much smaller selection to choose from than someone with a better credit history.

Here’s how to go about buying a car with bad credit and what you’ll need to be aware of to avoid being overcharged.

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1. Check Your Credit
2. Improve Your Score
3. Fix Credit Errors
4. Know What You Can Pay
5. Make a Bigger Down Payment
6. Get a Shorter Loan
7. Work with a Bad Credit Car Dealer
8. Get Preapproved
9. Get a Co-signer
10. Comparison Shop
11. Read the Fine Print
12. Refinance

Buying a Car With Bad Credit

If you have poor or bad credit, buying a vehicle requires some common steps that people with good credit don’t necessarily need to worry about. Consider taking these steps when buying a car with bad credit.

1. Check Your Credit

If your credit is poor, you may be stuck paying a higher interest rate until you can improve your credit scores. Your credit score is a huge factor when it comes to the interest rate and credit financing you will receive for your auto loan—or if you’ll be approved at all. You’ll want to go into this process knowing what your score is and what your options are.

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Check your credit from all three major credit bureaus several months before you begin your car shopping journey so you have time to rebuild your credit if possible. Track your credit history to determine the areas where you can most improve before applying for a car loan.

2. Improve Your Score

There is no official minimum credit score you need to buy a car, but a higher score will open up more options and better rates. According to Experian, the average credit score for used car purchases at the end of 2018 was 659.

If your score is below 660, look for ways to improve your score before applying for a car loan. Your free Credit Report Card from Credit.com will help you determine the most efficient ways to improve your score: paying off debt, clearing up errors or taking care of old collection accounts could bump you over that coveted 700 threshold. Delaying the car finance process to improve your poor credit score and rebuild your credit can save you money in the long run.

3. Fix Credit Errors

If you find mistakes on your credit reports, fixing those errors could bring your score up quite a bit. If possible, give yourself at least 30 days to dispute credit report mistakes before you start car shopping and looking for an auto finance company or submit a loan application. If you think this is your best option, you can try DIY credit repair, or work with a credit repair service such as those from Lexington Law.

4. Know What You Can Pay

Whether or not you’re able to improve your credit score, you should know what you can afford to pay before you start shopping—and stay committed to your budget. Auto loan calculators are helpful tools to use when you are trying to determine how much car you can afford. These calculators can also provide you with an estimate of what you will be paying for the entire term of the auto loan, interest included.

〉 Try it now: Auto Loan Calculator

5. Make a Bigger Down Payment

If your score is still on the low side and you don’t have more time to rebuild your credit before purchasing a car, be prepared to put a large chunk of money down. If you’re able to put down more money, you can borrow less money—which will usually mean more savings overall. How much you have to put down on a car with bad credit depends on how low your score is (and why) as well as the price of the car and the dealer you’re working with. In general, at least $1,000 or 10% of the purchase price is recommended.

If you’re unable to put any money down, your options will be severely limited. You may be able to buy a car from a private seller who is willing to take payments, but this scenario is unlikely.

6. Get a Shorter Loan

Longer loans are generally considered a higher risk: there’s more time for you to potentially default on the loan, so the interest rates tend to be higher. The monthly payments will be higher for shorter loans, however, so make sure you are able to fit this into your budget with some room to spare.

7. Work with a Bad Credit Car Dealer

If you need a car now and have a credit score that falls below the 600 range, you may need to go to bad credit car dealerships that specialize in no-credit or poor-credit buyers. These dealerships will work with your credit history to get approval, but interest rates will likely be high and terms may be unfavorable.

8. Get Preapproved

Getting preapproval for auto financing from a bank or credit union could better prepare you for the car shopping process. This preapproval process analyzes your income, expenses, credit score and credit report and determines if you qualify for an auto loan from the lender and how much the lender would be willing to lend. Submitting your paperwork early and learning what obstacles you face could spare you a lot of headaches later when going through the loan approval process.

9. Get a Co-signer

If you have a poor credit score, it may be helpful to get a co-signer for your loan application. Not all lenders offer this option, so consider this carefully before moving forward.

10. Comparison Shop

Always shop around for your loan. You never know what options are available until you look. Look for the best possible terms and make sure that you can actually afford the payments so you don’t end up negatively affecting your credit even more. It’s also a good idea to compare rates from other lenders like banks or credit unions before settling on a loan straight from the dealership.

11. Read the Fine Print

The fine print can make a big difference in the overall purchase price of the vehicle, especially if your credit means a high interest rate. Make sure there’s no prepayment penalty so you’re not fined for paying off a loan quicker than agreed, and avoid pricey add-ons that increase the sales price.

12. Refinance

Auto loan refinancing could help lower your auto loan rates and your monthly payment, which could end up saving you hundreds over the life of the loan. For loan refinancing, you typically want a strong history of making on-time payments for at least 12 months. However, keep in mind that the loan refinancing will also take your credit history and current credit scores into account as well. So, as always, continue working diligently to improve and rebuild your credit rating.

Key Takeaways

Whether or not you can get a car loan with bad credit depends on many factors. If you follow these tips, you may be able to get an auto loan and save money even with poor credit scores.

You can view your credit score and get an easy-to-understand Credit Report Card for free at Credit.com or via the mobile app for iPhone and Android. Start by taking a look at what factors are having the most impact on your scores and credit rating so you know what to address first.

Source: credit.com

How Much is Your FICO Score Costing You on Your Car? (Infographic)

A FICO credit score is a credit score developed by FICO, a company that specializes in what’s known as “predictive analytics,” which means they take information and analyze it to predict what’s likely to happen.

In the case of credit scores, FICO looks at a range of credit information and uses that to create scores that help lenders predict consumer behavior, such as how likely someone is to pay their bills on time (or not), or whether they are able to handle a larger credit line.

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Scores developed by FICO can also be used to forecast which accounts are most likely to end up included in bankruptcy, or which ones will be most profitable. And credit-based insurance scores, which they also create, are used to help insurance companies identify which customers are least likely to file claims.

What Does FICO Stand For?

The name FICO comes from the company’s original name, the Fair Isaac Co. It was often shortened to FICO and finally became the company’s official name several years ago.

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To create credit scores, they use information provided by one of the three major credit reporting agencies — Equifax, Experian or TransUnion. But FICO itself is not a credit reporting agency.

Though a FICO credit score is the most widely used among lenders, there are other scores lenders can choose from, such as the VantageScore, which is becoming more widely used.

What is the FICO Score Range?

There are actually dozens of FICO scores, with each version serving a different purpose (more on that later). Generally, the FICO score range is 300 to 850, with the higher number representing less risk to the lender or insurer.

What Is a Good FICO Score?

Consumers with excellent FICO scores (usually around 760 fico score range or higher, though every lender has different standards) are likely to get the best rates when they borrow, as well as the best discounts on insurance.

What Goes Into FICO Scores?

Five main factors go into FICO scores, and they each have a different effect on your score. Here’s the breakdown:

  • Payment history (35% of the FICO score)
  • Debt/amounts owed (30%)
  • Age of credit history (15%)
  • New credit/inquiries (10%)
  • Mix of accounts/types of credit (10%)

All these factors are considered in other credit score models, so it’s safe to say that if you have a good FICO score, you likely have a strong score with other models as well. However, for some people, the weight of these categories can vary.

For example, people who haven’t been using credit for very long will be factored differently than those with a longer credit history, according to FICO. So, the importance of any one of these factors depends on the overall information in your credit report.

That’s why it’s a good idea to not get too hung up on the specific number of your credit score. Instead, focus on what areas of your credit are strong and which ones you might want to work on to better achieve a good FICO score.

What’s Not in My FICO Score?

While FICO considers a wide range of information to come up with your credit scores, there is a lot of information that is not used. According to FICO, the scores do not consider anything that isn’t on your credit report, which includes your race, religion, national origin, sex, marital status and age.

Here are some other things that FICO says it does not factor into its scores:

  • Participation in a credit counseling program
  • Employment information, including your salary, occupation, title, employer, date employed or employment history
  • Where you live
  • The interest rates on your credit accounts
  • “Soft” inquiries (requests for your credit report), which include requests you make to see your own credit reports or scores
  • Any information that has not been proven to be predictive of future credit performance

Is There Just One FICO Score?

FICO has dozens of credit score models. Some are specific to what the consumer is applying for. For example, if you’re applying for an auto loan, your potential creditor may use a FICO score formula that gives significant weight to your history of making auto loan payments. Other models are customized for FICO’s clients.

Additionally, FICO updates its general formulas from time to time, with the most recent being the FICO 9 rollout in 2014. Paid collection accounts are not factored into FICO 9 scores, and unpaid medical collections have less of a negative impact on credit scores, compared to other credit scoring models and previous FICO algorithms.

A Few More Facts About FICO Scores

A lesser-known fact about FICO scores is that some people don’t have them at all. To generate a credit score, a consumer must have a certain amount of available information. For example, to generate FICO scores, the consumer should have at least one account that has been open for six or more months and at least one account that has been reported to the credit reporting agencies over the last six months.

Did you know that it is also possible to achieve a perfect FICO score? The best FICO score a consumer can have is an 850, and that number has been reached by only about 0.5% of consumers that practiced better credit behavior.

Paying all your bills on time, not carrying your credit card balances month to month, and not opening multiple accounts are all good behaviors to follow to help you reach your FICO score goals of 850.

Each of the three major credit bureaus will generate their own FICO scores. It is recommended that you look at each credit report from Equifax, Experian, and TransUnion because the FICO score for each may slightly vary. You may also find that there is more than one FICO score available from each reporting agency.

FICO SBSS

FICO scores are not just for individuals either. Small businesses also have their own FICO scores, and these scores are what banks and other financial institutions use to help determine if they should lend to a business or not.

The FICO SBSS is the small business FICO Score (FICO Small Business Scoring Service) and counts as one of three main business credit scores. These FICO scores range from 0 to 300 and like regular FICO scores, the higher the sbss score, the better.

To calculate a FICO SBSS, the personal and business credit history is considered alongside other financial information such as payment history to vendors and suppliers. These scores can then be used to prescreen or determine loan terms and credit amounts that could reach more than one million dollars.

If a small business would like to improve their FICO score, then they should take a closer look at their personal credit history while they take positive steps to begin to build business credit.

FICO Score Versus VantageScore

Like FICO scores, VantageScores are also utilized by all three of the major credit reporting agencies. The VantageScore credit score is another scoring model that was actually developed by TransUnion, Equifax, and Experian.

While both scoring models use much of the same information to calculate scores, FICO bases their model off the reports from the three credit bureaus to come up with one formula. They both use a scoring model with scores ranging between 300 and 850.

VantageScore is most often used if the individual does not have an adequate credit history while FICO is used if there is a history of at least six months or more. VantageScore credit scores are given to people who don’t qualify to receive a FICO credit score due to the short or nonexistent credit history.

In addition to a FICO score and VantageScore, you can also find a TransRisk Score. This score is also a three-digit number on a scoring model of 300 to 850. The TransRisk Score, however, is found with information on a TransUnion credit report and is not often used by lenders.

How to Get Your Credit Score

With a free Credit.com account, you get a free credit score. This is not a trial offer, there is nothing to cancel, and you won’t be asked for your credit card information.

You can also purchase a FICO score online, and some credit card companies also provide free credit scores with an account or on your regular statement.

Source: credit.com

Car payment too high

Buying a car with bad credit is possible—it’s just going to cost you. You’ll probably have a higher interest rate and require a bigger down payment, and you may have a much smaller selection to choose from than someone with a better credit history.

Here’s how to go about buying a car with bad credit and what you’ll need to be aware of to avoid being overcharged.

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1. Check Your Credit
2. Improve Your Score
3. Fix Credit Errors
4. Know What You Can Pay
5. Make a Bigger Down Payment
6. Get a Shorter Loan
7. Work with a Bad Credit Car Dealer
8. Get Preapproved
9. Get a Co-signer
10. Comparison Shop
11. Read the Fine Print
12. Refinance

Buying a Car With Bad Credit

If you have poor or bad credit, buying a vehicle requires some common steps that people with good credit don’t necessarily need to worry about. Consider taking these steps when buying a car with bad credit.

1. Check Your Credit

If your credit is poor, you may be stuck paying a higher interest rate until you can improve your credit scores. Your credit score is a huge factor when it comes to the interest rate and credit financing you will receive for your auto loan—or if you’ll be approved at all. You’ll want to go into this process knowing what your score is and what your options are.

Check your credit from all three major credit bureaus several months before you begin your car shopping journey so you have time to rebuild your credit if possible. Track your credit history to determine the areas where you can most improve before applying for a car loan.

2. Improve Your Score

There is no official minimum credit score you need to buy a car, but a higher score will open up more options and better rates. According to Experian, the average credit score for used car purchases at the end of 2018 was 659.

If your score is below 660, look for ways to improve your score before applying for a car loan. Your free Credit Report Card from Credit.com will help you determine the most efficient ways to improve your score: paying off debt, clearing up errors or taking care of old collection accounts could bump you over that coveted 700 threshold. Delaying the car finance process to improve your poor credit score and rebuild your credit can save you money in the long run.

3. Fix Credit Errors

If you find mistakes on your credit reports, fixing those errors could bring your score up quite a bit. If possible, give yourself at least 30 days to dispute credit report mistakes before you start car shopping and looking for an auto finance company or submit a loan application. If you think this is your best option, you can try DIY credit repair, or work with a credit repair service such as those from Lexington Law.

4. Know What You Can Pay

Whether or not you’re able to improve your credit score, you should know what you can afford to pay before you start shopping—and stay committed to your budget. Auto loan calculators are helpful tools to use when you are trying to determine how much car you can afford. These calculators can also provide you with an estimate of what you will be paying for the entire term of the auto loan, interest included.

〉 Try it now: Auto Loan Calculator

5. Make a Bigger Down Payment

If your score is still on the low side and you don’t have more time to rebuild your credit before purchasing a car, be prepared to put a large chunk of money down. If you’re able to put down more money, you can borrow less money—which will usually mean more savings overall. How much you have to put down on a car with bad credit depends on how low your score is (and why) as well as the price of the car and the dealer you’re working with. In general, at least $1,000 or 10% of the purchase price is recommended.

If you’re unable to put any money down, your options will be severely limited. You may be able to buy a car from a private seller who is willing to take payments, but this scenario is unlikely.

6. Get a Shorter Loan

Longer loans are generally considered a higher risk: there’s more time for you to potentially default on the loan, so the interest rates tend to be higher. The monthly payments will be higher for shorter loans, however, so make sure you are able to fit this into your budget with some room to spare.

7. Work with a Bad Credit Car Dealer

If you need a car now and have a credit score that falls below the 600 range, you may need to go to bad credit car dealerships that specialize in no-credit or poor-credit buyers. These dealerships will work with your credit history to get approval, but interest rates will likely be high and terms may be unfavorable.

8. Get Preapproved

Getting preapproval for auto financing from a bank or credit union could better prepare you for the car shopping process. This preapproval process analyzes your income, expenses, credit score and credit report and determines if you qualify for an auto loan from the lender and how much the lender would be willing to lend. Submitting your paperwork early and learning what obstacles you face could spare you a lot of headaches later when going through the loan approval process.

9. Get a Co-signer

If you have a poor credit score, it may be helpful to get a co-signer for your loan application. Not all lenders offer this option, so consider this carefully before moving forward.

10. Comparison Shop

Always shop around for your loan. You never know what options are available until you look. Look for the best possible terms and make sure that you can actually afford the payments so you don’t end up negatively affecting your credit even more. It’s also a good idea to compare rates from other lenders like banks or credit unions before settling on a loan straight from the dealership.

11. Read the Fine Print

The fine print can make a big difference in the overall purchase price of the vehicle, especially if your credit means a high interest rate. Make sure there’s no prepayment penalty so you’re not fined for paying off a loan quicker than agreed, and avoid pricey add-ons that increase the sales price.

12. Refinance

Auto loan refinancing could help lower your auto loan rates and your monthly payment, which could end up saving you hundreds over the life of the loan. For loan refinancing, you typically want a strong history of making on-time payments for at least 12 months. However, keep in mind that the loan refinancing will also take your credit history and current credit scores into account as well. So, as always, continue working diligently to improve and rebuild your credit rating.

Key Takeaways

Whether or not you can get a car loan with bad credit depends on many factors. If you follow these tips, you may be able to get an auto loan and save money even with poor credit scores.

You can view your credit score and get an easy-to-understand Credit Report Card for free at Credit.com or via the mobile app for iPhone and Android. Start by taking a look at what factors are having the most impact on your scores and credit rating so you know what to address first.

Source: credit.com

Interview with a Car Broker

Buying a car with bad credit is possible—it’s just going to cost you. You’ll probably have a higher interest rate and require a bigger down payment, and you may have a much smaller selection to choose from than someone with a better credit history.

Here’s how to go about buying a car with bad credit and what you’ll need to be aware of to avoid being overcharged.

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1. Check Your Credit
2. Improve Your Score
3. Fix Credit Errors
4. Know What You Can Pay
5. Make a Bigger Down Payment
6. Get a Shorter Loan
7. Work with a Bad Credit Car Dealer
8. Get Preapproved
9. Get a Co-signer
10. Comparison Shop
11. Read the Fine Print
12. Refinance

Buying a Car With Bad Credit

If you have poor or bad credit, buying a vehicle requires some common steps that people with good credit don’t necessarily need to worry about. Consider taking these steps when buying a car with bad credit.

1. Check Your Credit

If your credit is poor, you may be stuck paying a higher interest rate until you can improve your credit scores. Your credit score is a huge factor when it comes to the interest rate and credit financing you will receive for your auto loan—or if you’ll be approved at all. You’ll want to go into this process knowing what your score is and what your options are.

Check your credit from all three major credit bureaus several months before you begin your car shopping journey so you have time to rebuild your credit if possible. Track your credit history to determine the areas where you can most improve before applying for a car loan.

2. Improve Your Score

There is no official minimum credit score you need to buy a car, but a higher score will open up more options and better rates. According to Experian, the average credit score for used car purchases at the end of 2018 was 659.

If your score is below 660, look for ways to improve your score before applying for a car loan. Your free Credit Report Card from Credit.com will help you determine the most efficient ways to improve your score: paying off debt, clearing up errors or taking care of old collection accounts could bump you over that coveted 700 threshold. Delaying the car finance process to improve your poor credit score and rebuild your credit can save you money in the long run.

3. Fix Credit Errors

If you find mistakes on your credit reports, fixing those errors could bring your score up quite a bit. If possible, give yourself at least 30 days to dispute credit report mistakes before you start car shopping and looking for an auto finance company or submit a loan application. If you think this is your best option, you can try DIY credit repair, or work with a credit repair service such as those from Lexington Law.

4. Know What You Can Pay

Whether or not you’re able to improve your credit score, you should know what you can afford to pay before you start shopping—and stay committed to your budget. Auto loan calculators are helpful tools to use when you are trying to determine how much car you can afford. These calculators can also provide you with an estimate of what you will be paying for the entire term of the auto loan, interest included.

〉 Try it now: Auto Loan Calculator

5. Make a Bigger Down Payment

If your score is still on the low side and you don’t have more time to rebuild your credit before purchasing a car, be prepared to put a large chunk of money down. If you’re able to put down more money, you can borrow less money—which will usually mean more savings overall. How much you have to put down on a car with bad credit depends on how low your score is (and why) as well as the price of the car and the dealer you’re working with. In general, at least $1,000 or 10% of the purchase price is recommended.

If you’re unable to put any money down, your options will be severely limited. You may be able to buy a car from a private seller who is willing to take payments, but this scenario is unlikely.

6. Get a Shorter Loan

Longer loans are generally considered a higher risk: there’s more time for you to potentially default on the loan, so the interest rates tend to be higher. The monthly payments will be higher for shorter loans, however, so make sure you are able to fit this into your budget with some room to spare.

7. Work with a Bad Credit Car Dealer

If you need a car now and have a credit score that falls below the 600 range, you may need to go to bad credit car dealerships that specialize in no-credit or poor-credit buyers. These dealerships will work with your credit history to get approval, but interest rates will likely be high and terms may be unfavorable.

8. Get Preapproved

Getting preapproval for auto financing from a bank or credit union could better prepare you for the car shopping process. This preapproval process analyzes your income, expenses, credit score and credit report and determines if you qualify for an auto loan from the lender and how much the lender would be willing to lend. Submitting your paperwork early and learning what obstacles you face could spare you a lot of headaches later when going through the loan approval process.

9. Get a Co-signer

If you have a poor credit score, it may be helpful to get a co-signer for your loan application. Not all lenders offer this option, so consider this carefully before moving forward.

10. Comparison Shop

Always shop around for your loan. You never know what options are available until you look. Look for the best possible terms and make sure that you can actually afford the payments so you don’t end up negatively affecting your credit even more. It’s also a good idea to compare rates from other lenders like banks or credit unions before settling on a loan straight from the dealership.

11. Read the Fine Print

The fine print can make a big difference in the overall purchase price of the vehicle, especially if your credit means a high interest rate. Make sure there’s no prepayment penalty so you’re not fined for paying off a loan quicker than agreed, and avoid pricey add-ons that increase the sales price.

12. Refinance

Auto loan refinancing could help lower your auto loan rates and your monthly payment, which could end up saving you hundreds over the life of the loan. For loan refinancing, you typically want a strong history of making on-time payments for at least 12 months. However, keep in mind that the loan refinancing will also take your credit history and current credit scores into account as well. So, as always, continue working diligently to improve and rebuild your credit rating.

Key Takeaways

Whether or not you can get a car loan with bad credit depends on many factors. If you follow these tips, you may be able to get an auto loan and save money even with poor credit scores.

You can view your credit score and get an easy-to-understand Credit Report Card for free at Credit.com or via the mobile app for iPhone and Android. Start by taking a look at what factors are having the most impact on your scores and credit rating so you know what to address first.

Source: credit.com

Credit Card, Auto Loan Rates Won’t Rise Soon Despite Fed

Shopping for the best auto loans? Whether you are looking for the best car loan rates for a new or used vehicle, or you want to refinance an auto loan, we can help. Today’s auto loan rates are displayed in our helpful car loan calculator. Get the lowest rate when you compare rates from multiple lenders, even if your credit isn’t perfect.

With a lower interest rate, you’ll save money and pay off your car loan faster. It pays to shop for the best car loan rate! *

The single most important thing you can do to save money on an auto loan is to shop for the best auto loan rate before you set foot in a dealership. By knowing what kind of rate you qualify for before you try to buy a vehicle, you accomplish three things:

  1. You’ll know what kind of car payment you can qualify for
  2. You can focus your negotiations with the dealer on the vehicle price rather than on the financing
  3. You won’t end up getting stuck in a higher cost loan than you can qualify for

As you shop around for financing on a new or used vehicle, keep in mind the following factors that will affect your payment:

Length of loan:

Many buyers are opting for car loans that are five years or longer. Experian notes that in the last quarter of 2012, the average car loan length was 65 months. That’s almost five and a half years! The advantage of a longer car loan is that your payments will be lower. The disadvantage is that you may be “upside down,” – you owe more than the vehicle is worth – for a longer period of time.

Downpayment:

A larger down payment will reduce the amount you borrow and may make it easier to qualify for a better car loan rate. If you haven’t saved much for a down payment, you may be able to sell your current vehicle and use that money toward the down payment, or trade in your current vehicle to reduce the price of the car or truck you are buying. But if you are short on cash, don’t panic. Not all lenders will require a down payment.

Credit score:

Your credit score will be used to help determine the interest rate you’ll pay. But just because you have less than perfect credit, that doesn’t mean you can’t get a decent rate. The credit score that an auto lender uses may be somewhat different than the score you see if you get your own credit so don’t get too hung on up the number.

Refinance Auto Loans

Is your current auto loan rate higher than the rates you see in the loan rate comparison table above? If so, you may want to refinance your car loan. If you can get a lower rate, you’ll save money and you may be able to pay off your loan faster, too. Another option is to extend your loan term to make your payments more affordable. It’s easy. Just choose refinance from the options above and apply to see if you qualify for an auto loan refinance.

Bad Credit Auto Loans

If you have credit problems and need to buy a car or truck, you may be tempted to just use a Buy Here Pay Here (BHPH) car dealer that advertises it makes bad credit car loans. With one of these arrangements, the dealership arranges the financing and usually you make your payments to the dealer rather than a third-party lender like a bank or credit union.

Before you go this route, make sure you try to get preapproved for a car loan online or with a local financial institution. If you can get financing elsewhere then you’ll have more freedom to shop for the best deal on your car from a variety of sources, rather than limiting yourself to the cars available at that dealership. And when you do find a car or truck you like, you’ll be able to try to get the price down, rather than taking whatever they offer you.

Keep in mind that even if you are offered a high-rate auto loan online or through your bank or credit union, you can always ask the dealer to beat that rate – after you have negotiated the price for the vehicle you want.

Protect Your Credit When Auto Loan Shopping

Every time a lender checks your credit or requests your credit score, that fact will be noted on one or more of your credit reports as an “inquiry.” Your credit score can drop as a result. The good news is that most credit scoring models will ignore recent auto-related inquiries, and will count multiple inquiries from auto loan applications in a short period of time as one. To protect your credit, it’s best to shop for an auto loan in a focused period of time: two weeks or less is best to be safe.

You can check your credit score for free using Credit.com’s free Credit Report Card. Requesting your own credit score through this service will not affect your credit score.

Car Title Loans

If you are desperate to borrow money but you have bad credit, you may be tempted to get a car title loan. These loans require you to pledge your vehicle as collateral for the loan. They are not legal in all states, but where they are, they usually lend up to 25% of the value of the car or truck you own free and clear.

Watch out! Interest rates on auto title loans are very high; often 25% per month – or about 300% per year – according to the Center for Responsible Lending. According to the CRL report, the average car-title borrower renews a loan eight times, paying $2,142 in interest for $951 of credit. If possible, you should try instead to get a personal loan or, if you can’t, see whether a non-profit credit counseling agency can help you find another solution to your financial difficulties.

-APR = Annual Percentage Rate. Rates based on credit worthiness and are subject to change without notice. Your actual rate and monthly payment may vary. Must be 18 years of age or older to apply. Loans subject to credit approval and could be subject to credit union membership.

* IMPORTANT NOTE FROM CREDIT.COM: Credit.com is not a lender. The above offers are provided by third-parties from whom Credit.com receives compensation. Credit.com will not call you about any loan application resulting from the above offers, and will not ask you over the phone, via email or otherwise for financial information or other sensitive personal data.

REMEMBER never to share any financial information or other sensitive personal data over the phone or via email without independently confirming the identity of the company calling first!

† Advertiser Disclosure: The offers that appear on this site are from third party advertisers from whom Credit.com receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). It is this compensation that enables Credit.com to provide you with services like free access to your credit scores at no charge. Credit.com strives to provide a wide array of offers for our members, but our offers do not represent all financial services companies or products.

Source: credit.com

Should I Finance a Car or Pay Cash with Stimulus Money?

During the previous round of stimulus checks, almost 9 million Americans used the money to buy a car, and with an even bigger stimulus check fresh in many checking accounts, we can expect a lot of car buying in the upcoming months.

The big question that many people will ask themselves as they consider replacing their old car is whether they should pay cash for their upgrade (or at least cover a big down payment) or simply finance the car and hold onto the cash for a rainy day. In an era with low interest rates on car loans, it’s not entirely clear what the right financial choice is.

As you’re making this decision for yourself, here are the key factors to consider.

Check Your Auto Loan Rates

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In this article

Do you need a car at all?

Start with an honest assessment of whether you need a car at all. Is this car purchase addressing an actual need or a want?

Here are some questions to consider in your situation:

  • Do you currently have a reliable car that gets you to your destinations as needed? If so, think very carefully about whether this is the right moment to buy a replacement, or whether there are other, better uses for your stimulus check.
  • Do you have access to alternate forms of transportation that can take care of the things you need? Is there mass transit in your area? Are you close enough to work to walk or bicycle there?
  • Is your actual need for a car infrequent — less than once a month? In those situations, is it more cost-effective to just rent a car when you need one?

Quite often, the impulse to buy a car is a reflex based on a desire to have a newer car, not an actual need. Make sure it’s a need before investing that much money. If it’s not a need, do something more financially prosperous with that money and buy a car when it becomes a need.

Evaluate your financial situation

If you’ve decided that buying a car now is the right call, you should step back and look at your finances. Before you decide whether to buy a car with your stimulus money or fully finance a car, take a serious look at your overall financial situation. Here are four key questions to think about regarding your financial health that can guide you toward the right car buying decision.

Do you have any high interest debt?

If you have any high interest debt, paying off that debt is a higher priority than making a down payment on a car loan. High interest debt includes anything with an interest rate higher than the car loan you might get. Assuming you have decent credit, you should be considering all debt above 4% annual interest as “high interest” here, as that’s very likely to be higher than the interest rate you would get on a car loan.

In particular, you should be eyeballing payday loan debt and credit card debt. If you have any debt of either kind, paying those down should be a higher financial priority than a car down payment. Use your stimulus check on those debts, then if you’re still intending to buy a car, finance the whole car with a much lower interest rate loan.

Do you have an emergency fund? 

An emergency fund is a pool of cash set aside for personal emergencies, such as an unexpected job loss, an illness, an accident, a car problem, identity theft, a natural disaster or something similar. A credit card does not suffice as an emergency fund because it doesn’t work in many emergencies, such as identity theft or a natural disaster or if your balance is too high.

Cash is king. Aim to have at least a couple of months of living expenses in a savings account, if possible.

If you don’t have an emergency fund, sinking your entire stimulus check into a car is a mistake. It leaves you in a situation where, if something goes wrong in your life, you won’t be able to easily handle it and may end up with credit card debt or even worse repercussions. Having an emergency fund is a higher priority than avoiding low interest debt.

Do you have good credit? 

One big assumption behind the first two questions is the idea that you have good credit. Without good credit, you won’t be able to easily get a low interest car loan.

Good credit simply means that you have a long history of paying your bills on time, not maxing out your credit cards, and not being the victim of identity theft. If that sounds like you, your credit is very likely in good shape.

If you’re not sure about your credit, the easiest first step is to obtain your credit reports. You can obtain your credit reports for free once per year for each of the three major credit bureaus. Make sure they’re accurate, and if not, get them corrected by reaching out to lenders.

Are you saving for retirement and other financial goals?

A final question to consider is whether you’re taking care of your other financial goals, particularly saving for retirement. Are you putting money aside for retirement through a workplace retirement plan or through your own Roth IRA?

Over the long run, the money you put into a healthy retirement savings plan will offer a much better financial return than a down payment on a low interest car loan. If you’re not saving for retirement at all but you have no high interest debt and an emergency fund, consider prioritizing retirement savings over making a down payment on a low interest car loan.

Buying a car with (or without) your stimulus check

After going through the above questions, you may have concluded to put off buying a car to solidify your financial foundation, which is a great choice. If you’ve reviewed the questions and still decided to buy, here are some tips to consider to get the best value from your car purchase.

First, if you have no down payment (because you used it to eliminate high interest debt or make other smart financial moves), you can still secure a low interest rate on a used car loan if your credit is good. This is particularly true if you’re trading in a car. If you cannot secure a low interest loan for a car, you should get a very low end used car, pay it off quickly, and drive that until you stabilize your credit.

Second, regardless of whether you’re paying in full, paying with a down payment or financing all of it, a few principles of car buying apply. In short, your best option is to focus on reliability by buying a late-model used car — one that was manufactured in recent years from a reliable manufacturer. You can figure out which car manufacturers and models are reliable by stopping at your local library and looking at the most recent annual car buying guide from Consumer Reports.

Finally, buy your car with the intent to drive it until the cost to cover upcoming repairs exceeds the value of the car. Follow the maintenance schedule to the letter and use a trusted mechanic for that maintenance, as that will drastically extend the lifespan and reliability of your car. Doing this will ensure that the car is still in great shape long after you’ve fully paid it off.

We welcome your feedback on this article. Contact us at inquiries@thesimpledollar.com with comments or questions.

Source: thesimpledollar.com

How to Get the Best Price for Your Used Car

In the mid-’90s, a neighbor in my apartment building taped a “for sale” sign in the rear window of his Nissan 240SX. A few days later, he knocked on my door and asked if I had any magazines I wasn’t reading. Puzzled, I handed him my girlfriend’s old Cosmopolitan.

“Thanks,” he said. “I’m selling my car.”

“Yeah, I noticed,” I said. “But how does this help?”

He motioned for me to come outside, and I watched him flip through a small stack of magazines and pull out the perfume and cologne ads – you know, the ones with the aromatic samples. He tossed these under the front seats.

He was convinced a good-smelling car would fetch a better price.

I never found out what he got for that Nissan or if those ads added to the price. But it showed me just how creative we can get when we’re selling our old cars.

Let’s look under the hood at some advice for selling your used car.

1. Get detailed about the detailing

Just like selling your house, the cheapest way to add value to a car is to clean it thoroughly. Seems obvious, but we don’t always notice the grime on something we see every day.

Also sprinkle baking soda on the carpets and cloth seats, then vacuum it up to remove odors you might not smell but potential buyers will. Arm & Hammer recommends waiting at least 15 minutes before turning on the vacuum, “or longer for strong odors.” If you’re a smoker, that can mean letting it sit overnight – and not smoking in the car for at least a week.

You can scrub your floor mats, but if they still look bad, replace them. Clean out the glove box, removing everything but the owner’s manual.

While you’re cleaning the windshield, make sure the windshield wipers are in good condition and that they function properly. If they don’t, it’s a sign that other parts of the vehicle may also have been neglected.

2. Let there be more light

Make sure all the lights work. Do your headlights, taillights and brake lights work? How about the dome light (which illuminates the interior when you open the door)? Map lights? Do you have a vanity mirror that lights up?

Your headlight covers can yellow with age. Instead of replacing the entire headlight, spend less than $20 on products like the 3M Headlight Restoration System. While they won’t make your headlights look like new, they’ll go a long way to clearing up the cloudiness. Plus, your headlights will shine brighter than before.

3. Be solid on your fluids

Knowledgeable buyers are not only going to check the oil level to make sure you have enough, but also whether it’s bright and clean – because long-term driving with low or old oil means years off the life of the engine. If necessary, top off the other fluids, like the windshield washer fluid (front and back), and the antifreeze.

4. Treat your tires

If you paid for a car wash and the tires aren’t glistening, get out that box of baking soda. Add just enough water to make a paste, use a scrub brush to rub it in, and let it sit for a few minutes. Rinse it off and marvel at the results. Also spend a few quarters at a nearby gas station to properly inflate those tires.

5. Check the “check engine” light

Philip Reed at Edmunds says, “The light could mean a costly problem, like a bad catalytic converter, or it could be something minor, like a loose gas cap.” Ask your trusted mechanic to diagnose the problem if the “check engine” light is on and make the needed repair.

6. Remove scratches and dings

Getting rid of scratches on a car’s finish isn’t easy. It’s so complicated that Popular Mechanics even developed a step-by-step guide. Forget about DIY dent repair. If you’re not adept at it, you could make the problem worse. If you have anything more than minor scratches and dings, take the car to an expert.

7. Gather your records

Neatly order the maintenance and repair invoices you had stashed in your glove box. Didn’t keep meticulous records of your repairs? Consider using a service like Carfax. These services are usually used by buyers who want to check a used car’s history of accidents, recalls and repairs. Pay for a report yourself and show it off.

8. Set the price

Now that your car looks and smells as nice as possible, it’s time to settle on an asking price. Don’t depend solely on Edmunds and/or Kelley Blue Book. Check sites like eBay, Craigslist and other online classified ads to see what cars like yours are fetching where you live. Always ask for more than you’ll settle for; buyers love to negotiate.

9. Write the ad

Now you have to promote your ride. AutoTrader offers an incredibly detailed list of do’s and don’ts for writing an ad that can serve as your guide. AutoTrader also offers 10 tips for writing an effective online ad for your car. One of those tips: Be honest about repairs.

10. Take buyers out for a spin

Stacy suggests that before you let a prospective buyer take a test drive, you chauffeur them yourself. Emphasize the car’s features – fine leather, a smooth ride, excellent speakers. Without coming on too strong, let no selling point of your vehicle go unnoticed.

More From Money Talks News:

Image: Comstock

Source: credit.com

Why Are Auto Loans the Easiest Loans to Get?

According to Kelley Blue Book, the average price for a light vehicle in the United States was almost $38,000 in March 2020. Of course, the sticker price will depend on whether you want a small economy car, a luxury midsize sedan, an SUV or something in between. But the total you pay for a vehicle also depends on a number of other factors if you’re taking out a car loan.

Get the 4-1-1 on financing a car so you can make the best decision for your next vehicle purchase.

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Decide Whether to Finance a Car

Whether or not you should finance your next vehicle purchase is a personal decision. Most people finance because they don’t have an extra $20,000 to $50,000 they want to part with. But if you have the cash, paying for the car outright is the most economical way to purchase it.

For most people, deciding whether to finance a car comes down to a few considerations:

  • Do you need the vehicle enough to warrant making a monthly payment on it for several years?
  • Does the monthly payment work within your personal budget?
  • Is the deal, including the interest rate, appropriate?

Factors to Consider When Financing a Car

Obviously, the first thing to consider is whether you can afford the vehicle. But to understand that, you need to consider a few factors.

  • Total purchase price. Total purchase price is the biggest impact on how much you’ll pay for the car. It includes the price of the car plus any add-ons that you’re financing. Depending on the state and your own preferences, that might include extra options on the vehicle, taxes and other fees and warranty coverage.
  • Interest rate, or APR. The interest rate is typically the second biggest factor in how much you’ll pay overall for a car you finance. APR sounds complex, but the most important thing is that the higher it is, the more you pay over time. Consider a $30,000 car loan for five years with an interest rate of 6%—you pay a total of $34,799 for the vehicle. That same loan with a rate of 9% means you pay $37,365 for the car.
  • The terms. A loan term refers to the length of time you have to pay off the loan. The longer you extend terms, the less your monthly payment is. But the faster you pay off the loan, the less interest you pay overall. Edmunds notes that the current average for car loans is 72 months, or six years, but it recommends no more than five years for those who can make the payments work.

It’s important to consider the practical side of your vehicle purchase. If you take out a car loan for eight years, is your car going to still be in good working order by the time you get to the last few years? If you’re not careful, you could be making a large monthly payment while you’re also paying for car repairs on an older car.

Buying a Car with No Credit

You can buy a car anytime if you have the cash for the purchase. If you have no credit or bad credit, your options for financing a car might be limited. But that doesn’t mean it’s impossible to get a car loan without credit.

Many banks and lenders are willing to work with people with limited credit histories. Your interest rate will likely be higher than someone with excellent credit can command, though. And you might be limited on how much you can borrow, so you probably shouldn’t start looking at luxury SUVs. One tip for increasing your chances is to put as much cash down as you can when you buy the car.

If you can’t get a car loan on your own, you might consider a cosigner. There are pros and cons to asking someone else to sign on your loan, but it can get you into the credit game when the door is otherwise barred.

Personal Loans v. Car Loans: Which One Is Better?

Many people wonder if they should use a personal loan to buy a car or if there is really any difference between these types of financing. While technically a car loan is a loan you take out personally, it’s not the same thing as a personal loan.

Personal loans are usually unsecured loans offered over relatively short-term periods. The funds you get from a personal loan can typically be used for a variety of purposes and, in some cases, that might include buying a car. There are some great reasons to use a personal loan to buy a car:

  • If you’re buying a car from a private seller, a personal loan can hasten the process.
  • Traditional auto loans typically require full coverage insurance for the vehicle. A personal loan and liability insurance may be less expensive.
  • Lenders typically aren’t interested in financing cars that aren’t in driving shape, so if you’re buying a project car to work on in your garage during your downtime, a personal loan may be the better option.

But personal loans aren’t necessarily tied to the car like an auto loan is. That means the lender doesn’t necessarily have the ability to repossess the car if you stop paying the loan. Since that increases the risk for the lender, they may charge a higher interest rate on the loan than you’d find with a traditional auto loan. Personal loans typically have shorter terms and lower limits than auto loans as well, potentially making it more difficult for you to afford a car using a personal loan.

Steps You Should Follow When Financing a Car

Before you jump in and apply for that car loan, review these six steps you should take first.

1. Check your credit to understand whether you are likely to be approved for a loan. Your credit also plays a huge role in your interest rate. If your credit is too low and your interest rate would be prohibitively high, it might be better to wait until you can build or repair your credit before you get an auto loan. Sign up for ExtraCredit to see 28 of your FICO scores from all three credit bureaus.

2. Research auto loan options to find the ones that are right for you. Avoid applying too many times, as these hard inquiries can drag your credit score down with hard inquiries. The average auto loan interest rate is 27% on 60-month loans (as of April 13, 2020).

3. Get your trade-in appraised. The dealership might give you money toward your trade-in. That reduces the price of the car you purchase, which reduces how much you need to borrow. A few thousand dollars can mean a more affordable loan or even the difference between being approved or not.

4. Get prequalified for a loan online. While most dealers will help you apply for a loan, you’re in a better buying position if you walk into the dealership with funding ready to go. Plus, if you’re prequalified, you have a good idea what you can get approved for, so there are fewer surprises.

5. Buy from a trusted dealer. Unfortunately, there are dealerships and other sellers that prey on people who need a car badly. They may charge high interest or sell you a car that’s not worth the money you pay. No matter your financial situation, always try to work with a dealership that you can trust.

6. Talk to your car insurance company. Different cars will carry different car insurance premiums. Make a call to your insurance company prior to the sale to discuss potential rate changes so you’re not surprised by a higher premium after the fact.

Next to buying a home, buying a car is one of the biggest financial decisions you’ll make in your life, and you’ll likely do it more than once. Make sure you understand the ins and outs of financing a car before you start the process.

Source: credit.com

4 Tips Before You Buy Your Teenager a Car

Roughly 26% of car buyers feel that they overpaid for their vehicle, according to a 2014 survey from TrueCar, Inc. That same survey admittedly also found consumers believe car dealers make about five times more profit on the sale of a new car than they actually do — but whether you truly paid too much for your now-old ride or you simply think you did, there are ways to save the next time you hit up a car dealership. For starters, the rates on auto loans are largely driven by your credit, so simply bolstering your credit score can potentially save you thousands of dollars over the life of your loan. Plus, it never hurts to comparison shop and negotiate when it comes to auto loans and the actual vehicle itself — you may be missing out on savings by doing one and not the other.

But First… How Much Car Can You Afford?

According to Credit.com contributor and car insurance comparison company TheZebra, automotive experts generally suggest auto loans not exceed 10% (if it’s just the loan) to 20% (if it’s the loan and related expenses like car insurance) of your gross monthly income. Of course, that’s a broad rule and every potential car owner is going to have to take a long, hard long at their finances and current debt levels to decide what they can, in fact, afford. Following these three simple cost-cutting steps can help you save big on your auto loan and next car purchase.

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1. Do a Credit Check

Not checking your credit before you start shopping for a car is a huge mistake. Because your auto loan rates are directly tied to your credit scores, even a small inaccuracy on your credit report could cost you. Before you start shopping for your dream car, take an hour to check all three of your credit reports and credit scores online. You need to check with all three major credit reporting agencies — Equifax, Experian and TransUnion — because you don’t know which one a lender will use for your application. If you have a credit score above 750, you can probably qualify for the best rates available and negotiate an excellent deal on your car. If your credit score is lower, see if you can give it a boost before you apply for a loan.

You can view two of your credit scores, along with your free credit report snapshot on Credit.com. The snapshot will pinpoint what your specific area of opportunities are and what steps you can take to improve. However, as a general rule of thumb, you can raise your credit score by disputing errors on your credit report, paying down high credit card debts and limiting new credit applications.

2. Shop Online

Unless you have a credit score in the 800s and can qualify for a 0% auto loan offer, you are probably not going to get the best deal on a loan from the dealership. Auto loan rates and fees offered by online auto lenders are usually a lot lower than the rates offered by dealership financing programs. Plus, you can shop and compare rates online without causing damaging inquiries to your credit report (provided you’re not formally applying for every offer you see). Most online lenders have calculators or rate guides that show you what rate you could receive based upon your credit score. (Note: Be sure to vet any lender, whether online or within a dealership, before taking them up on an offer.)

With many online loans, you fill out the application and receive an approval by email within a few hours. Then the lender mails you a check that is ready to be made out to the person or business selling the car. If you end up not buying a car or not using the loan, you toss the check (shredding it first, of course). Plus, the check from the lender usually specifies a certain price range (for example, $9,000-$10,000). This leaves you with some room for negotiating a lower price with the seller even after you have received your loan approval. Speaking of which …

3. Negotiate the Price

Many people may wind up overpaying for a car simply to avoid negotiating the price of a car with a salesperson. Luckily, the Internet makes negotiating with car dealers a whole lot easier. Before you start shopping, look up the listed price, invoice and MSRP of the car you want through an unbiased site like Kelley Blue Book and request free price quotes online. Armed with these facts, you’ll have an advantage over the salesperson when you start the negotiations. You should be able to save a couple hundred dollars, if not a few thousands, by negotiating with the car salesperson before you decide to buy.

Proving It

You may be thinking: This is all fine and dandy, but does it really add up to $3,000 in savings? Let’s crunch the numbers using this auto loan calculator.

According to data from Experian, the average interest rate on a new car loan for prime customers as of the last quarter of 2015 was 3.55%. The average rates on a new car for non-prime customers and subprime customers during that timeframe were 6.24% and 10.36%, respectively.

So, let’s say you wanted to buy a $16,000 car and had $1,000 saved for a down payment. If you chose a loan repayment period of 60 months, had a non-prime credit score (think just below 700), and got a loan through a dealership, you could receive about a 6.3% annual percentage rate (APR).

  • Dealership option: $292 a month – $17,525 total costs

However, if you checked your credit reports and scores before you applied and found a way to boost your score to prime (think around 750), your interest rate from the dealership could drop to about 3.5%.

  • Improved score: $273 a month – $16,373 total costs

You would have already saved $1,152 dollars, just by checking your credit reports! That’s a pretty good return on your investment. Next, you might be able to reduce your rate even more by shopping for a loan online with your new credit score of 750. Let’s suppose, for argument sake, you qualify for a 2.7% APR (the average interest rate for super-prime customers during the last quarter of 2015, according to Experian).

  • Online loan: $268 a month – $16,052 total costs

You would have saved almost $1,473 by working on your loan options using Step 1 and 2. Finally, if you went to negotiate with the salesperson you could probably make a deal with the seller to reduce the price of the car down to $14,000. In this case, you would only have to borrow $13,000 with your 2.7% APR loan from an online lender.

  • Negotiated deal: $232 a month – $13,912 total costs

Your total savings from following these three simple steps would equal $3,613 over the life of your auto loan!

Source: credit.com

Can Your Credit Score Save You Money on a New Car?

Generally, the credit bureaus consider anything over 670 a good credit score.

If your score is 671 or higher, you’re doing fairly well. The best credit score and the highest credit score possible is 850 for both FICO® and VantageScore models. FICO considers a score between 800 and 850 to be “exceptional,” while VantageScore considers a score above 780 to be “excellent.” It’s possible to get an 850 credit score, but it’s tough to achieve.

In This Piece

FICO and VantageScore Credit Score Charts
What Credit Scores Mean
Do Lenders Prefer FICO or VantageScore
What Makes a Good Credit Score
What Else Do Lenders Consider
How to Get Your Credit Scores
How to Improve Your Score


Credit Score Charts for FICO and VantageScore

Credit scores calculated using the FICO or VantageScore 3.0 scoring models range from 300 to 850. Those scores are broken down into five categories, though the breakdowns differ slightly.

For FICO, a good credit score is 670 or higher; a score above 800 is considered exceptional. For VantageScore 3.0, a good score is 661 or higher, and a score of 781 to 850 is excellent.

On the flip side, FICO scores below 670 fall into the fair and poor range, while VantageScore 3.0 scores below 660 are considered fair, poor, or very poor.

FICO and VantageScore aren’t the only credit scoring models. However, they are the most commonly used models and the ones used by the three major credit bureaus: Experian, Equifax, and TransUnion. Some lenders even have their own scoring models. But most lenders and credit card companies use FICO scores or VantageScores.

>> Learn more about how Vantage Score compares to FICO.

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What Do Credit Scores Mean?

The three-digit numbers called credit scores are how the scoring institutions break down your credit profile. That number is calculated based on the information in your credit report at a credit bureau. Each bureau has its own file, which explains why your score might differ from one scoring institution to the next. Your file is a picture of how you’ve used credit to date.

Your score and where it falls tells lenders and credit card issuers how likely you are to pay off a loan, pay off a credit card, make late payments, and default on payments. In other words, it tells them if you’re an acceptable risk and if they should approve you for a loan or credit card.

A low score doesn’t necessarily mean lenders won’t give you a loan or card. Instead, it can mean they do so at a higher interest rate and with inferior loan terms. In other words, to offset the risk you pose, they charge you more interest or a higher annual fee.

For example, if you’re buying a $300,000 house with a 30-year fixed mortgage and you have good credit, you can end up paying around $94,000 less for that house over the life of the loan than if you had bad credit.*

Scores are also used by landlords, cell phone companies, and even employers to check how risky you are.

Do Lenders Prefer a Good VantageScore Score Over a Good FICO Credit Score?

Lenders don’t necessarily prefer one score over the other. It’s likely, though, that a given lender uses only one credit scoring institution.

FICO reports that 90% of the top US lenders use FICO scores when deciding whether to loan money to an applicant. On the other hand, VantageScore states that between July 2018 and June 2019, approximately 12.3 billion VantageScore credit scores were used.

The VantageScore model offers these advantages to lenders and consumers:

  • It was developed by the three major credit bureaus to offer a model across all bureaus that’s more consistent than FICO.
  • It calculates scores for more people by giving a score to people with a shorter credit history.

Both models are consistent enough that knowing where you stand in one gives you a reliable indication of your credit in general.

What Makes a Good Credit Score?

The same primary considerations go into calculating VantageScore credit scores and FICO credit scores:

Payment History

A history of late and missed payments for either scoring model lowers your credit score more than any other factor.

When determining your score, the FICO and VantageScore scoring models look at how recently you missed a payment or were late, how many accounts you were late on, and how many total payments on each account were missing or late.

Credit Utilization Ratio

Your credit utilization ratio is the amount of credit you’ve used divided by your total available credit limit. For example, if you have credit cards with a combined credit limit of $8,000 and balances of $3,000, your credit utilization ratio is 37.5%.

A good credit score requires a credit utilization ratio of 30% or less, although 10% or less is ideal.

Credit Age

Your credit age is how long you’ve used credit. More specifically, the length of your credit history is how long your credit accounts have been reported open, and your credit age is the average of how long all of your accounts have been open.

Say your oldest account was closed and fell off your file, and the next oldest account is 10 years “younger” than the account that fell off. Now, instead of showing how long you’ve actually used credit overall, credit files may show the age of the oldest account on file and your score may decrease.

To maintain a high credit age, keep at least one account on your credit file that is at least six months old. As you grow older, it should be easier to maintain a higher credit score as your accounts continue to grow in credit age.

Account Mix

Account mix is how many installment accounts and revolving accounts you have.

  • Installment accounts are loans—such as mortgages, car loans, or personal loans—with a fixed monthly payment for a specific term (number of months or years).
  • Revolving accounts are credit cards and credit lines with a credit limit that you can charge against.

Lenders want to see you can handle both types of accounts, so a good mix of the two makes for a better credit score.

Credit Inquiries

Hard inquiries happen when a lender looks at your credit report because you’ve applied for credit. A hard inquiry affects your credit score—lowering it by 5 to 10 points. The inquiry can stay on your credit report for up to two years, but it will impact your score for only 12 months. Though hard inquiries make up only 10% of your score, try to minimize credit inquiries to maximize your score.

When you need an auto loan or mortgage, it’s normal to shop around to find the best rates. Depending on the scoring model used, if you do your loan shopping in a 14- to 45-day span, the inquiries can be lumped into a single inquiry and affect your score less. FICO score models allow 45 days. On the other hand, the VantageScore model uses only a 14-day span.

Soft inquiries don’t affect your credits score.

Is a Credit Score the Only Thing Lenders Consider?

Lenders look at more than credit scores. The score plays a large factor, but so does your full credit report—sometimes from one bureau, sometimes from all three. Lenders may also look at your annual income and your debt-to-income ratio or overall debt.

Your debt-to-income ratio is calculated by dividing the total recurring monthly debt you have by your gross monthly income. This determines the percentage of debt you have compared to your income.

Credit card issuers and lenders may also look at how many reported delinquencies you have, how many hard inquiries were added to your credit file, your overall credit card utilization rate, your annual income, and your credit history’s health.

How Do I Get My Credit Scores?

You can get your full credit report from each credit bureau free once a year from AnnualCreditReports.com. Through April 2022, you can get a free copy of your credit report from each bureau weekly to help protect your financial health during the COVID-19 coronavirus pandemic. Those reports don’t include your credit score.

Most online options for viewing your credit score—free or paid—are limited to one or two scores. ExtraCredit from Credit.com takes it twenty-six steps further by offering you 28 of your FICO scores from all three major credit bureaus. When you sign up for an ExtraCredit account, you can also earn money when you get approved for select offers, monitor your accounts with $1 million identity theft insurance, and get exclusive discounts on credit repair services. All for less than $25 a month.

If you’re not ready for ExtraCredit, Credit.com’s free Credit Report Card offers you your Experian VantageScore 3.0 credit score for free for life.

What if My Credit Score Is Less Than Good?

Now that you know what’s a good credit score, it’s crucial to act on yours. If your credit is fair or poor, find out why. Then you can address the factors and work to improve your score.

Do you want to boost your credit profile? Our new ExtraCredit Build It feature can help. ExtraCredit identifies rent and utility bills you’re already paying and adds them to your credit reports as new tradelines. This allows the credit bureaus to see additional payment information from you, which can help build your credit profile.

*Assuming someone with poor credit (620–639) gets a 30-year fixed-rate loan at 4.03% APR compared to someone with excellent credit (760+) getting a 2.441% APR. Interest for the borrower with poor credit would total $217,478. Interest for the borrower with excellent credit would total $123,425. The difference of $94,053 is based on calculations made on 9/30/20 from https://www.myfico.com/credit-education/calculators/loan-savings-calculator/.


Source: credit.com