FICO has released an article that discusses some stories about the FICO score that could help bad credit auto loan applicants
What we think
If you’re interested in knowing how different credit habits affect your credit scores before applying for horrible credit auto loans you’ll want to keep on reading.
We know because here at Auto Credit Express we’ve been working in bad credit auto sales for the past twenty years. During those years, we’ve helped hundreds of buyers get approved auto loans.
We also show them how to avoid a tote the note dealer (applicants outside our retail areas can fill out our online car loans bad credit application to find the right bad credit dealer near them) while showing them the loan process (to prevent repossession).
Just as it’s important to know what your credit scores are before applying for any loan, especially poor credit car loans, it’s also valuable to know how the decisions you make regarding credit will affect your FICO scores.
Fortunately, FICO just released an article that discusses some of the incorrect ideas about credit scores. Here are some excerpts from that article:
Credit scoring myths
Myth: To get a high score, run up high balances on your credit cards.
Contrary to what some believe, using a lot of credit is usually NOT good for one’s credit risk score. Roughly 30 percent of a FICO® Score is determined by the person’s reported debt, with particular emphasis on revolving credit utilization (balance divided by credit limit). We find that high scorers typically keep their reported utilization under 25 percent on credit cards.
Myth: Paying your credit card bill down to zero every month will boost your score.
This is a great habit to get into and we strongly encourage it. It helps the consumer firmly control her credit card usage, encourages her to spend within her means, and helps avoid runaway debt. Because the information on credit reports is limited, however, this excellent habit doesn’t necessarily translate into a higher credit score.
Here’s why. The FICO® Score can’t see – and can’t deduce — how much the borrower last paid the card issuer. On the credit report you’ll see the account balance last reported by the card issuer. But the previous month’s balance isn’t shown. Nor is the amount of the borrower’s last payment. And the way an account balance is reported, it rarely reflects the borrower’s most recent payment. That’s because many lenders report to the credit bureau the same outstanding balance that was last billed to the borrower. Other lenders report the balance as of a particular day in the month. So if a borrower habitually runs up a high card balance every month, his credit report will likely show those same high balances even though he routinely pays off his balance in full every month.
Myth: To raise your credit score quickly, open a new credit card or take out a loan.
The FICO® Score considers a wide variety of information about each reported account. In this case, opening a new account will likely have more negative effects than positive effects on the person’s score. On the plus side, it may improve the person’s credit utilization rate. It may also broaden the mix of credit types on the person’s credit report although this is a minor scoring factor. On the down side, the person will typically lose points in areas such as their length of credit history and the area we describe as “new credit,” or one’s propensity to seek new credit. Although the score will most likely drop from opening a new account, it should recover within a few months in response to responsible credit management. The best advice for consumers is to take on new credit sparingly and only when genuinely needed.
Myth: To raise your credit score quickly, close any unused credit cards.
If opening an account can lower your score, then closing an account must raise it, right? Actually this is rarely the case. Years ago lenders believed that having too much unused or available credit was a high-risk factor. In reality, having unused or available credit is often indicative of lower risk, and is viewed favorably by the FICO® Score. Closing a credit card typically removes available credit from the person’s credit report. That’s why closing a credit card doesn’t boost one’s FICO Score, and in some situations may actually cause the person’s score to drop.
The Bottom Line
As a consumer, you should be aware of how your credit decisions affect your credit scores. You should also know that if you have been turned down for a conventional car loan it doesn’t mean your only choice now is a tote the note dealer.
At Auto Credit Express, we specialize in placing customers with bad credit with dealers that can help them get approved for second chance auto loans.
So if you are serious about getting your car credit back on track you can begin now by filling out our terrible credit auto loans application.