Consumer Car Buying Advice Blog

The latest report from credit reporting company TransUnion could have serious implications for bad credit car loan shoppers.

How TU measures credit risk

At Auto Credit Express, we see that although there are signs that the current plunge in the economy is beginning to level off, the latest TransUnion Credit Risk Index indicates that, based on the average consumer credit risk across the United States, although there appears to be a slowdown in the growth of risk, the process of “leveling off” has yet to occur.

Transunion’s Credit Risk Index (defined as the weighted average probability of 90-day delinquency or worse among consumers in a given region relative to the nation as a whole) is computed by using the fourth quarter of 1998 as a baseline for comparison. By tapping into 27 million anonymous consumer records in a random sample every quarter (from the company’s consumer credit database), TransUnion was able to come up with any deviations from that baseline in terms of delinquency rates.

By calculating quarter-over-quarter changes, TU is able to determine the changes in credit risk as a plus or minus change from the 100 basis points established in Q4 1998 with additional credit risk represented by additional points while less risk would result in a score of less than 100.

Credit risk continues to grow

As you can imagine, the current economy has caused the Credit Risk Index to grow. In the first quarter of 2008, the Index stood at 118.83. From there it grew to 124.79 in the fourth quarter of last year and, through the first quarter of this year, to 127.26.

Here is TransUnion’s take on the results:

“The Credit Risk Index is a true barometer of today’s economy, and the first quarter of 2009 indicates that the inherent level of credit risk within the U.S. is now 27.26 percent higher than the level reflected in TransUnion’s consumer credit database at the conclusion of 1998,” said Chet Wiermanski, global chief scientist at TransUnion. “Credit Risk Index data suggest that the growth in consumer credit risk has slowed during the past quarter, a positive note. However, the index remains at an all-time historical high, indicating that delinquencies and foreclosures will continue to rise in the coming months.”

The effect on bad credit car loans

Here at Auto Credit Express, if we take this information into consideration, it means that it could have the following effects on bad credit car loans:

• Lender parameters on loans will continue to be tight. Higher interest rates and large down payments will continue to be the norm on subprime car loans.

• With more customers entering the subprime market and fewer lenders to serve them, lenders can afford to be more selective in approving loans.

Taking those points into consideration, potential bad credit car loan customers need to keep the following things in mind:

• Be aware of what is contained in your credit report and know your FICO score.

• Choose a reasonable vehicle and be sure your car payment is between 10% and 15% of your gross monthly income (the lower the better).

• The more money you have to contribute to a down payment, the better. Not counting any rebates or dealer cash, 10% to 20% down will really help you get an approval from the lender.

The Bottom Line

At Auto Credit Express, we have helped literally thousands of people with bad, blemished, bruised and tarnished credit buy cars and reestablish their credit through our national network of affiliate dealers that specialize in bad credit car loans. If you have questions, our web site will help you determine how much car you can afford and, unlike other sites, our toll free number is listed on every page in case you have any additional questions.

When you decide to buy a car, our credit application can be filled out in the comfort and security of your own home. For more information, visit www.autocreditexpress.com.

This entry was posted and is filed under Used Cars. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.