Maybe you’re 18 and ready to own your own car or want to trade in your old car for something new and exciting. Unless you’re independently wealthy, you’ll need car credit. Modern cars, whether new or used, cost thousands of dollars and dealerships work with you to find lenders.
If you’re new to auto credit in Janesville, then you might not understand the process and what you need to get the best loan. One of the most important aspects of getting a loan is your FICO Score. The score helps determine if you can get a loan and at what interest rate you get.
We’ll examine the importance of your FICO score and what it means for getting a loan.
What Is a FICO Score?
The FICO Score was introduced in 1989 and stands for Fair Isaac Corporation. Fair Isaac was a data analytics company in California that specialized in credit. Founded in 1956, the company developed credit scores, but the familiar FICO score wouldn’t be developed until later.
When a person gets a loan, the bank takes a risk that the loaner might default on the loan. The bank must then go through a difficult and costly process to get the money and even then, may not get it back. They needed a way to determine based on the previous credit history if they are likely to default or not.
A credit report shows your credit history and if you paid your loans on time or not. The report is complex and while still an important tool, doesn’t provide a quick snapshot of your risk. The FICO score takes the credit report and other factors and boils everything down to a number between 300 and 850.
The higher your number, the less likely you are to default. The lower the number, the more risk. Today, the FICO score is the industry standard for most loans including those for a car dealer in Janesville.
What’s in Your FICO Credit Score?
The score takes in more than just your credit history. In fact, there are five primary aspects of the score beginning with your payment history.
Banks like customers that are easy. They pay their loans on time and don’t require phone calls or mail to remind them about it. Your payment history makes up 35 percent of the total score. The company looks at your other loans and debt to see if you pay on time or if you’re late.
Late payments can decrease your credit score. Defaulting on a loan, which is not paying on a loan until the bank gives and sends you to collection, can cause a severe credit score decline. Civil suits and bankruptcies also severely decrease your credit score.
Your outstanding debt makes up 30 percent of the total score. The less debt you the better off you are. The more debt you have the less likely you’ll be able to keep up with all the payments. Adding another loan could put you over the edge.
The length of your credit history makes up 14 percent of the score. The longer you’ve had good credit, the less risk you are. People with a short history are an unknown.
Someone with 20 years of car payments and house payments is less risk because they have a well-documented history.
Your account age counts for about 10 percent of the score. If you’ve had a house payment for 20 years, then it means you’ve been paying for 20 years. It’s the same with credit cards. If you’ve had the same credit card for a decade, then it shows can handle the debt.
The last part of the score is the types of credit used and makes up 10 percent of the score. A variety of debt through the years looks good.
Car Credit and Your Score
Lenders for automobiles are like other lenders and use the FICO score to determine risk. When you look for a quality used car, the lender uses it in its determination for a loan.
The average credit score is around 700. With an excellent credit score such as 750 or above, you have little worries about not only getting a loan but also a great interest rate.
If your score is 600 to 750, then you’ve got good credit. You have a good chance of getting a loan with a good interest rate for your car.
Scores of 600 or below, are considered a high risk credit score. You’ve had problems with credit in the past and you represent a high risk to the bank. This doesn’t mean you won’t qualify for a loan, but you have a higher interest rate.
If you want a car loan with a low credit score, decrease your risk by having a larger down payment. The higher amount you borrow, the higher the risk for the bank.
Improving Your Credit Score
You can get your credit score from the three primary credit bureaus: Experian, Equifax, and TransUnion. They provide both the score and your credit report. Look over your credit report because there are often errors.
If your score is low, then try to eliminate debt and pay your loans on time. Your credit score gradually increases if you have good credit practices. Car dealers have many different lenders to choose from including lenders that specialize in great credit to those that specialize in bad credit.
Don’t assume you won’t get a loan because you have a low credit score. Instead, talk to a car dealer and see what they can do for you.
Get Your Used Car Today
Don’t drive around in a car you don’t like. If you want something better, then you’ll need car credit. We’ve examined how your FICO score impacts your car loan and how you can improve your credit if needed. You can even apply online.
If you’re looking for an auto dealer in Janesville, then contact our experts today. We’ll find the best loans for you and help you find the car of your dreams.