Credit challenged consumers applying for a bad credit car loan need to know how their financial problems have affected their credit scores.
Our business
At AutoNet Financial, we are in the business of helping our customers reestablish their credit by financing either a new or a newer pre-owned vehicle with a bad credit auto loan. But in addition to using a bad credit auto loan to raise your credit score, there are a number of other things that you can do to ensure that 2010 is a better year than 2009.
Earlier this year, TransUnion TrueCredit division’s vice president of consumer education had this to say about consumers giving themselves a fresh start in 2010: “Consumers should approach the New Year as a time to start fresh and begin managing their credit more closely. While it can be overwhelming, now more than ever, consumers need to play a more active role in their financial management to ensure they are in the best possible position with lenders.”
Your FICO score
In order to raise your credit score, it’s important to know how your financial decisions affect your current credit score. On its myFICO web site, the Fair Isaac Corporation (creators of the FICO credit scoring system) explains how different credit issues can impact your credit score by giving examples of two individuals and their credit histories:
Alex has a FICO score of 680 and:
• Has six credit accounts, including several active credit cards, an active auto loan, a mortgage, and a student loan
• An eight-year credit history
• Moderate utilization on his credit card accounts (his balances are 40-50% of his limits)
• Two reported delinquencies: a 90-day delinquency two years ago on a credit card account, and an isolated 30-day delinquency on his auto loan a year ago
• Has no accounts in collections and no adverse public records on file
Benecia has a FICO score of 780 and:
• Has ten credit accounts, including several active credit cards, an active auto loan, a mortgage and a student loan
• A fifteen-year credit history
• Low utilization on her credit card accounts (her balances are 15-25% of her limits)
• Never has missed a payment on any credit obligation
• Has no adverse public records on file
FICO then goes on to show what their credit scores might look like following certain adverse credit situations:
For Alex:
Maxing out a credit card 650-670
A 30-day delinquency 600-620
Settling a credit card debt 615-635
Foreclosure 575-595
Bankruptcy 530-550
For Benecia:
Maxing out a credit card 735-755
A 30-day delinquency 670-690
Settling a credit card debt 655-675
Foreclosure 620-640
Bankruptcy 540-560
As you can see by the above examples, higher initial scores are affected more than lower initial scores, as the lower initial score, according to FICO, “already reflects his riskier past behavior. “
Maxing out a credit card has the least impact, while a bankruptcy will cause your credit score to drop the furthest because, again according to FICO, “because the FICO scoring model generally gives the most weight to payment history when calculating the score, and bankruptcy is included in one’s payment history. Also, a bankruptcy often involves more than one credit account, compared with a foreclosure which often involves just a single account.”
As we see it
In addition to taking out a bad credit auto loan to reestablish your car credit, it’s important to know how your other credit behaviors impact your FICO scores.
For more information on the bad credit auto loan process, please visit our web site at www.autonetfinancial.com.
