FICO Damage Points and Bad Credit Car Loans
by Steve Cypher on Tuesday, December 15th, 2009Recent information released by FICO can help bad credit auto loan consumers better judge how their credit will be affected.
The FICO score
At Auto Credit Express, we know that there are 5 factors that FICO (formerly known as Fair Isaac) uses to determine your credit score (a 3 digit number measured on a scale of 300 to 850). Where you fall in this ranking will determine whether you can finance your next car with a traditional lender (usually 640 or higher) or whether you will need to apply for a bad credit car loan (a score below 640). The 5 factors and how they affect auto financing include:
Payment History - Payment history affects approximately 35 % of your score. Making all of your monthly payments on time goes a long way towards being able to secure vehicle financing through traditional lending channels. If you have been a bit lax in making your payments on time, bad credit car loans could be an alternative. Of special note: recent late payments will have more of a negative impact on your score while those from the past will not affect your score nearly as much.
Balances - How much do you currently owe to creditors? Your current debt load will affect about 30 % of your FICO score. If your credit cards are at their limits and your revolving credit is maxed out, this will have a negative effect on your score. Bad credit car loan buyers, especially, should try and lower their debt load before applying for a loan. The lower your balances (a rule of thumb is to keep your current balances at 30% of your credit limit or lower), the higher your score and the lower the interest rate that you will be charged on a bad credit car loan.
Credit Utilization – The types of credit you are currently using impact your credit score by approximately 15 %. Banks, finance lenders, credit cards, mortgages, and all other financing is included in this category.
Depth of Credit – How long have you been using credit? Your time “in the bureau” accounts for approximately 10% of your credit score. The longer you’ve been using credit, the higher your score will be.
Recent Credit Opened - Recent credit applications impact your score by about 10%. If you are constantly applying for new credit (loans, credit cards, etc.) this will be reflected in a comparatively lower credit score.
Damage points
For the first time, last month, FICO has divulged to what extent derogatory remarks on your credit report can affect your overall credit score by publishing a matrix of 5 “credit mistakes” and how each of these missteps will lower your credit score, using two base scores – 680 and 780.
The mistakes include maxing out your credit card, a 30-day late payment, debt settlement, foreclosure and bankruptcy and represent a glimpse into the company’s ultra-secret mathematical scoring model.
Here is the matrix supplied by FICO:
The bigger they are, the harder they fall
As you can see, consumers with higher initial credit scores are penalized more heavily for their mistakes than those with a lower initial score. As you can also see from the matrix, the maxed-out card carries the least penalty, while a bankruptcy results in the most precipitous drop in points.
As we see it
At Auto Credit Express, our advice to consumers seeking bad credit car loans hasn’t changed since the beginning of the current economic recession:
• Know your credit score and what’s contained in your credit report
• Plan on coming into the loan with at least 10 percent down in cash or trade equity
• Keep the loan term as short as possible
• Buy a compact of midsize vehicle and put off looking at your dream car until after you’ve reestablished your credit.
For nearly 20 years, Auto Credit Express has been helping people with credit problems get approved for new and used car loans. Our affiliate dealers work with the leading subprime lenders to get you approved. Since our inception, we have processed over 1,000,000 online bad credit auto loans and closed over 1 Billion dollars in auto loans.
For more information, please visit www.autocreditexpress.com to see what we can do for you.
Tags: bankruptcy, better business bureau, car loan quote, chrysler employee discount, credit monitoring, credit score, ford, gm
why don’t online companys give you a interest rate for a bad credit car loan. how do i know the information you give me is correct. i’m trying to fix my credit but need a vehicle to get to work. are you trustworthy. need facts.
Don,
Many online companies such as Auto Credit Express are not lenders, but work with a nationwide network of retail dealers that specialize in financing people with bad credit. Because every bad credit situation is different, even if we knew your FICO score it would be impossible to quote you an interest rate, since bad credit lenders base their payment calls and interest rate levels on many additional factors besides your credit score.
As for being trustworthy, Auto Credit Express belongs to the Better Business Bureau, you can look up our web site ownership at GoDaddy.com or internic.net, and we have a toll-free number listed on our site that will, during our business hours, connect you to one of our knowledgeable customer service representatives that would be glad to answer any additional questions that you might have.