What Credit Score Principles Apply to an Auto Loan?
If you are someone who has borrowed money in the past for an education, home or auto loan, you know that your credit score has a direct effect on whether you will be able to secure a loan from the bank or credit lender. If you are able to receive assistance, the next question on everyone’s mind is what is the interest rate? The interest rate is how much the lender will charge you to borrow the money. It might surprise you but even with auto loans, the interest rate will vary depending on your credit score.
What is a Credit Score?
Your credit score is comprised of a few variables:
- Your ability to repay a loan.
- How much you owe for all your outstanding debts.
- The length of your credit history or how long you have had a bank account/have been borrowing money.
- If you have recently applied for new credit.
- The kinds of credit you have obtained such as store credit cards, major credit cards, other loans or financing.
All these variables make up your credit score which will fall somewhere between 300-850 with the higher number being impeccable credit. Any score over 700 is considered good credit with anything under 600 being considered not good credit. The better you are with managing money, the higher your credit score.
What Does the Auto Industry Want to Know?
Now that you know what factors comprise your credit score, let’s look at the auto industry. While they take all the factors mentioned above into consideration, the auto industry places a premium on whether you have had an auto loan in the past. They want to know if you have had an auto loan have you paid on time, in full or made partial payments? Other areas of consideration include whether you have had a car repossessed or included in bankruptcy proceedings. In essence, they are trying to protect their asset, the car. Until that car is paid in full, it is still the possession of the dealership. If any of these situations have occurred, this is a red flag to potential lenders.
For a more in depth look at credit scores and how they are used to determine rates for various loans, contact us today. We can provide more information about how you can raise your credit score.