Anna is a divorced mom of three who has been in the market for a used van to accommodate her kids and the family dog. When she was married, Anna had a shopping problem that led to some bad spending habits. 5 years ago, she and her now ex-husband had to file for a Chapter 7 bankruptcy, and she has since been in recovery mode. A job promotion and careful budgeting have allowed her to improve her credit a little, but her 620 FICO score is still considered subprime.
We know how hard it is when you are dealing with past due collections or currently resolved debts. When the time comes to make a purchase on an automobile, approval through a traditional dealership financing program can be difficult or impossible because of the negative marks on your credit report.
If you have been turned down for auto loans, it may be due to problems with your credit history. Having either damaged credit or little to no credit can make it difficult to get approved for financing. But you may be wondering why your credit rating is so important to lenders. If you have bad credit, why can’t they just let the past be the past? And if you’re struggling to build credit, why can’t they give you a chance to get started?
Paying off a balance that has gone into collections may or may not improve your credit score. You have to remember that, at this point, the original creditors no longer own the debt, so all decisions regarding the account will be made by the agency that purchased the debt.
Since most lenders that work with credit-challenged applicants only loan indirectly, what we do is match them to dealers in their area that represent their best chances to get approved for an auto loan.
For those with spotless credit, shopping around for an auto loan isn’t that big of a deal. But when you have credit that is less than perfect or in recovery, you should be more concerned about submitting a bunch of applications. When you submit a loan application, the dealership Finance and Insurance, or F&I, department will check your credit. This is known as a hard credit inquiry. When you are looking for a car, the credit agencies know that you will want to shop around, so any auto loan inquiries that take place within a 14 to 45 day window will only count as one, and typically won’t negatively affect your score.
It can be frustrating when you need to buy a car with damaged credit. Luckily, if you have a dependable income, there is a really good chance that you can get approved for financing in spite of your bad credit. Sometimes, “your job is your credit,” and it just comes down to finding the right lender.