A credit score of 500 does not bode well for a car shopper. While it does not mean you cannot find an auto loan, it will be challenging. Ratings of 500 to 579 are considered "very poor" by the Fair Isaac Company, which developed the FICO system. With a score of 500 you will not find an auto loan with a low, or even moderate, interest rate, and it may take time and a special financing program to find a loan at all.
Identification
Though the FICO model has a floor of 300, just finding a willing lender when you have a score of 500 will be tough -- though 500 is 200 points off the bottom of the scale, scores at either end of the range are rare, with the average score being 687, according to financial guru Suze Orzman. Some auto dealers, however, specialize in bad credit auto loans. The annual percent yield on an auto loan for borrowers with bad credit can top 11 percent and might go over 20 percent, according to Cars Direct. A large down payment may be required as well.
Considerations
While ads for "bad credit" auto dealers are plentiful, investigate programs carefully to see if they will be willing to work with you. Some bad-credit auto dealers do not actually want a person with bad credit alone, but rather a person with bad credit who has assets he will use to collateralize the loan, whose credit is not as bad as he thinks, or who knows someone with good credit willing to cosign on the loan.
Tip
At such a low score you have plenty of room to improve, so you might want to boost your credit before searching for an auto loan. This should save you hundreds or thousands of dollars in finance charges and you may not need a large down payment or cosigner any more. A bad credit score has other effects on car ownership. The insurance company, for instance, probably sets your premium in part on your score.
Boosting Your Credit
Improve your credit history by enrolling in automated payment plans for your existing debts to avoid late payments -- payments late by even one day can affect your credit. Check your credit for errors, including wrong addresses. Moving from state to state and changing jobs frequently does not factor into your credit score, but lenders worry about someone who seems unstable. Avoid applying for other credit accounts before you attempt to get a car loan. Creditors checking your credit for this purpose will impact your credit, even if you are declined. Eliminating debt, may not be possible, but paying off anything you can gives a double boost to your creditworthiness. It raises your FICO score and lowers your debt-to-income ratio -- another factor that lenders weigh heavily in a credit decision.
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