Borrowers with no credit can face a particularly difficult time when applying for a car loan as most high risk lenders need something on which to base their credit decisions
Consumers with problem credit thinking of applying for an auto loan need to first check their credit reports to be sure they meet the minimum in-bureau requirements of the majority of subprime lenders.
Here at Auto Credit Express we know why this is necessary because we’ve spent more than two decades helping car buyers with bad credit that are searching for online car loans locate the dealers that can offer them their best chances for car loan approvals.
But if they don’t have at least three years “in the bureau” or, worse still, if they don’t even have a FICO score, this can bring the entire application process to a halt.
To begin with, before applying for any kind of loan we recommend that borrowers know at least one of their FICO scores (most people have at least three – one from each of the major credit bureaus. That’s because the highest risk car lenders typically do business in the 550 and above FICO score range, although some will go as low as 500.
Secondly, most applicants cannot be credit “ghosts” (someone with little or no credit history). Unless you’re young and applying for a car loan under a college grad program, having a credit history (time in the bureau) of at least 3 years is usually considered a minimum. Also considered a plus is having at least one prior auto loan that appears on your credit reports.
So how does FICO determine who qualifies for one of their scores and why doesn’t FICO assign one of their scores to everyone?
In a recent article FICO supplied the answer to both questions. Here are some excerpts from that article:
Who Gets A FICO Score?
Every consumer who has this minimum amount of information – what modelers call “minimum score criteria” – gets a valid FICO Score. FICO Scores are generated for as many consumers as possible, without compromising reliability or accuracy by generating a score when there isn’t enough information to facilitate a safe lending decision.
For the FICO Score, the minimum score criteria are defined as follows:
• Consumer cannot be deceased
• Credit file needs at least one account reported within the last six months
• Credit file needs at least one account that is at least six months old
Note that the second and third conditions can be satisfied by two different accounts.
Since the FICO Score is a tool that helps lenders assess how a consumer will repay their various credit obligations, you logically need some prior history of repaying credit on the credit report. That’s one way to explain why we would have a lot of heartburn at providing a score on a credit report that is only populated with credit inquiries or public records.
In addition to having enough repayment history, it is important that the information be sufficiently recent. The older the information, the less likely that it is representative of the consumer’s current situation.
According to FICO, “recent” credit information is especially important because “a lot can happen to a consumer’s financial situation in a relatively short amount of time.”
The Bottom Line
Car buyers with poor credit should view their credit reports and know at least one of their credit scores before beginning the application process. By doing this they can see if they meet at least the minimum credit qualifications of most higher-risk lenders. If they don’t, they could be wasting their own time, the dealer’s time and adding an unnecessary credit inquiry to their credit history.
Another thing that’s good to know: borrowers who are experiencing problems getting approved that believe their only option is a BHPH car dealer should know that Auto Credit Express matches consumers that have experienced car credit issues with dealers that can offer them their best opportunities for approved car loans.
So if you’re ready to establish your auto credit, you can begin now by filling out our online car loan application.