How Does Bad Credit Car Financing Work?

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Apr 062012
 

An unpleasant fact following the great recession is that a lot more people out there have low credit ratings. This, in turn, makes it harder for people to buy anything that uses their credit standing, like with houses or cars. Fortunately, bad credit car financing is available for those who really need a set of wheels.

How it works

The first thing you should remember when looking for bad credit car financing is that it does not totally disregard your low credit score. It is not some magic contract where you come in with a clean slate. Even if you quality for an auto loan for bad credit, your rating will still be there.

Your rating is important even for this kind of loan because it tells businesses like car dealerships how risky it will be to lend you money. People with good Fair Isaac Corporation (FICO) scores find it easy to get loans because the risk is low that they will not be able to pay the lender. This is why they get low down payments and low interest rates.

A person with a low credit rating will be asked to pay a higher down payment, around 10% to 20% of the selling price of whatever you are getting. It actually makes it easier for you to get an auto loan for bad credit if you pay a higher down payment. This tells the lender that you are serious about the loan. Discuss this point carefully with your borrower, though, as you might end up paying a down payment that is more than you can afford.

Your interest rates will also be higher than if you had a good credit rating. If your FICO is low, this tells the potential creditor that you have a past of frequently missing payments, defaulting on loans, or even a bankruptcy filing. Continue reading »

 Posted by at 7:09 pm  Tagged with: ,

Know Your Credit Score And How It Affects Your Financial Freedom

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Apr 032012
 

Everyone should know how their credit score is made up as it very much affects your financial freedom. The Fair Isaac Co., (FICO score), creator of the score, uses a complex formula to make up an individuals score. Basically, it looks like this:

  • 35% comes from your past payment history, so pay your bills on time and don’t miss a payment!
  • 30% comes from how much you owe, so keep your outstanding balances below 30% of your available credit…the lower the better.
  • 15% comes from your credit history. Having a few cards for a long time is a plus but dormancy is a minus, so charge and payoff with regularity.
  • 10% comes from new credit. Don’t open unnecessary cards and keep creditor inquiries to a minimum as multiple inquiries will ding your score.
  • 10% comes from your mix of loans. This is usually out of your control. A good mix would consist of a home mortgage(s), an auto loan(s), revolving credit card(s), a student loan, etc.

An individual should look at their own credit score at least annually so that they know where they stand. You need to be on the lookout for any errors or inaccuracies. If you notice an error or omission, you will then be able to act on it before too much time goes by. Once a year you can order a credit report for free from one of the three credit reporting agencies, which are: Equifax, Experian and Transunion. Ideally, you would order one report from one of the agencies every third of the year so that you are being updated three times a year, each time by one of the three different firms. Having a firm grip on your credit score and watching it rise is closely intertwined with your financial freedom. As your score goes up, the interest that you are charged for a loan goes down because the lender feels more confident with your ability to repay the loan. Over time, you will save thousands in interest fees for the various loans that you will take out during your lifetime, so keep that credit score climbing!

Here are some more credit/debt notes to ponder:

  • Bankruptcy stays on your credit report for 10 years.
  • Tax liens could stay on indefinitely. Continue reading »
 Posted by at 8:11 pm  Tagged with: ,

All About Credit Report Errors

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Apr 012012
 

You may not be aware of it, but errors on credit reports are incredibly common. Approximately 4 out of every 5 of these reports have at least one error, so you should take the time to understand these errors and how you can dispute them. By learning more about these errors, you have a better chance of keeping your credit report clean as a whistle.

Errors on your credit report can happen a number of ways, one being identity theft. There are several people who are interested in gaining access to information like your Social Security number or credit card information so they can use your identity to open new accounts in your name. This kind of fraud is despicable, to say the least, but it is also common and can cause many issues with your credit score. Be sure to keep yourself protected against identity theft by keeping all important documents locked away safely and shredding any documents you do not need, especially if they have your Social Security number or credit card information.

Sometimes reports on your credit have errors that are simply a result of outdated information, so making sure that all your information is up to date at all times is very important to the integrity of your credit score. Even if the information you have on file is just incomplete, it can cause problems for you. Periodically check your information so you can know for sure whether incorrect information is affecting your credit score in a negative way.

In order to find out if there are any errors on your credit report, you will have to request that your report be generated. You will not be able to make any claim that there are errors unless the copy is less than 90 days old. You are allowed to request a free credit report each year by law, so take advantage of this if you have not already.

If you do encounter errors within your report, you should look into disputing them with the credit bureau that put together the report. You will have to do this in writing, online, or in person. Continue reading »

 Posted by at 6:10 pm  Tagged with: ,
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