What Factors Impact My Credit Score?
Understanding How Low Credit Auto Loans Affect Your Credit
To many, car shopping at used car dealerships is a hair-pulling experience. Add to that having to arrange vehicle financing, and the makings for a Stephen King novel are complete.
At Auto Bank, it doesn’t have to be that way. We’re one of the top buy here pay here car dealerships in Kansas City, offering in-house car loans to all of our customers. Put another way, our dealership is set up as a lending institution, on top of being a used car dealership. We have a variety of financing options to meet all our customers’ needs.
Although we offer low credit auto loans, one other major stress factor for many consumers is qualifying for a loan. Your credit score is key, and yet there’s so much mystery surrounding them. What impacts your credit score? How can you improve your credit? Will certain loans hurt my credit?
To help shed some light on credit scores, we’ve outlined a few factors that you can control.
The Fair Isaac Corporation (FICO) Score
Key is the Fair Isaac Corporation (FICO) score. The FICO score takes into account many factors, the main ones being payment history, credit history length, amount of debt, number of new credit accounts, and credit types. Factors such as age, race, religion, number of children, occupation, and other personal attributes are not considered. Let’s examine FICO scores a little closer and review the top influencers on credit score in a little more detail.
The FICO score is a standardized way to classify people regarding their creditworthiness. The scores range from 300 to 850 with 300 being bad and 850 being a top performer. The exact formula for arriving at scores is top-secret but certain general things are known.
Getting a high score requires an excellent payment history for a mix of different types of credit accounts (e.g., credit cards, home loans, and short-term loans). Of critical importance are on-time payments, not maxing out credit cards and a low amount to total debt.
On the other hand, a bad credit score is the opposite with late payments, no mix in the types of credit, late payments, maxed-out credit cards, and a large amount of total debt.
Generally speaking, a score between 670-740 is considered good. Lower scores between, say, 560 and 660, may cause lenders to decline or offer a high-interest rate.
Payment history is a very critical factor. Lenders want borrowers who are reliable and consistent in making payments. They look at late payments in 30-, 60-, and 90-day increments. Of course, the later it is, the worse it is for the FICO score. FICO also looks at any accounts that have been sent to collections, bankruptcies, garnishments, foreclosures, and legal actions that may have been taken against the lender. The better you are at avoiding these things and paying on time, the better your FICO score will be.
Credit history length
People aren’t born with a credit history. It has to build over time and have a history. This is a time factor that looks at how long one has been given credit over some time. Things like the age of accounts and the oldest account are considered. A long history of on-time payment is, of course, the best. A short history can be good as well as long as it shows on-time payments.
Amount of debt
A great payment history is fine but everyone has a credit limit. Even the mega-rich can only owe so much before lenders think twice. A good FICO credit score requires the one isn’t at or near their available credit limit. An “available credit” is a boundary where debt begins to overtake one’s ability to pay and total assets. Debt from all other lenders (e.g., other loans and credit cards) is included. The score looks at all that you owe in total balanced against the ability to pay.
Number of new credit accounts
Every account you open adds to the amount of debt. FICO takes into consideration the number of new credit accounts that have recently been added. While this factor isn’t one of the major factors, it is taken into account. A large pile of new debt can cause cash flow problems that can result in late payments or, in extreme cases, legal action or even bankruptcy.
This is kind of a mysterious factor. FICO likes to see a “mix” of different credit types. For example, having only a credit card history isn’t as good as having a mix of different types of credit. Ideally, it's nice to show that a borrower has been consistent in repaying different types of loans such as auto loans, home mortgages, credit cards, and other debts.
Showing consistency across a range of creditors is better than just being consistent with one type of debt (e.g., home mortgage). Like the number of new credit accounts, this isn’t a major factor but does add to FICO’s mysterious calculation.
Finding Used Cars in Kansas City at Buy Here Pay Here Dealerships
So, that’s a brief rundown on the major factors that influence one’s credit score. Sound intimidating? It doesn’t need to be! At Auto Bank KC, we know a thing or two about vehicle financing, and particularly low credit auto loans. Stop by one of our Kansas City, MO dealerships to find your perfect car today. Or, feel free to shop online first. We look forward to getting you into the perfect car for your needs and budget.