When it comes to auto loans, you may think that no credit and bad credit sound like the same thing, but they're actually very different. Lenders can tell the difference between someone who's had credit that has been mistreated, and someone who's just getting started with credit.
The Difference Between Bad Credit and No Credit
If you're turned down for a car loan, the lender is required to tell you the reason. Instead of waiting to be turned down, be proactive about understanding your credit situation before you start looking for an auto loan.
Even if you think that you don't have any credit, you may be surprised by what could show up on your credit reports. Credit scores range from 300 to 850, and you don't just start at 300 and work your way up. When you first begin establishing credit, you generally start out with a score somewhere in the lower middle part of the range.
In order to determine your credit situation, you need to get your credit reports and your credit score. There are several ways you can get your credit score online, such as through your bank or credit card provider's website, through the credit bureaus for a small fee, or through a credit monitoring service.
Credit reports can be gotten for free by visiting www.annualcreditreport.com. You're allowed a complimentary copy of your reports from each of the three national credit bureaus – TransUnion, Experian, and Equifax – once every 12 months.
Once you have your reports, look through them to see what's being reported. If you have very few accounts listed, this is known as having a thin file, and it's a good indication that you don't have much credit. Lenders can see this, too.
On the other hand, if you have a lot of accounts listed on your credit report, but you have a poor credit score, chances are you have bad credit. This generally happens when you make late payments or miss payments. Other things that can contribute to bad credit are high credit card balances, accounts in collections, repossession, and bankruptcy.
Can You Get an Auto Loan with No Credit?
Fortunately, whether you have no credit or bad credit, there are lenders available to help. When you're just starting out with credit, it may be best to look for a first-time buyer program to help you get the car loan you need. First-time buyer programs are designed to help younger borrowers get their first vehicle, and they rely on factors besides credit history to approve you.
In order to get approved for an auto loan with no credit, you should take a few steps to prepare for the process. After getting your credit reports, take a close look at your driving needs. Make a list of “must haves” for a car in order for it to meet your needs. Keep in mind that as a first-time buyer, it's important to balance affordability and reliability in a vehicle.
Next, set a car buying budget. Look at your income and your existing bills to see how much you can afford to spend on a loan payment each month. Don't forget to factor gas, maintenance, and insurance into your budget.
The last thing you need to do is find a lender that offers help to first-time buyers, or no credit borrowers. Not all lenders work with these types of borrowers.
Establishing Credit with a Car Loan
If you don't know where to begin looking for the right kind of lender for a no credit auto loan, we want to help. Auto Credit Express works with a nationwide network of special finance dealerships that have lenders available to work with many unique credit situations. Fill out our easy and fast car loan request form, and we'll begin the process of matching you with a dealer near you.
Once you're able to get an auto loan, you can begin building your credit file by making on-time payments over the loan term. Doing this is a great way to get your credit off to a good start!