Buying a car with bad credit can be a problem but it is not insurmountable. In fact, a lot of people get their first experience with building their credit history by buying a car. These people have absolutely no credit rating what so ever and yet they can get a car loan so it is possible to buy a car with bad credit you just need to be more flexible than someone with a great rating. If a person has a rating over about 630 on the FICO score then they won’t have much trouble at all. This shows the person can make their payments on time and they will be a good credit risk. In the world of auto financing this is very important. The bank or credit company wants to be sure you will pay back the money they loan you. If you have a history of not making your payments on time then this could be a problem. To be successful when you want to buy a car with bad credit it is important to think like the loan officer so you can know what they are looking for.
How To Buy A Car With Bad Credit
The first step really is to understand what your credit rating is as this has the biggest impact on whether or not you will get a loan and how much interest you will be forced to pay. Your credit rating is based on five areas of your credit history. Each of these plays a part but they are not all weighted the same. The credit rating, also called the FICO score because it was first used by the Fair Isaac Company, combines all these factors to get a number between 300 and 900. The higher the score the better your chances of getting a loan because it indicates you will be more likely to be able to pay back the loan.
The first 35% of the score is based on how well you have paid off loans in the past. There can be two problems with this portion of the score. You may never had a loan before or you may have missed some payments. Either of these will lower this portion because it either shows there you have no history of paying back a loan or you have a history of being late. This is the biggest factor when buying a new car with bad credit.
The second major factor which accounts for about 30% of the total is how much actual credit you have outstanding. The credit responsibilities you have the less likely you are to be able to take on new credit. Thus, having a lot of credit related bills will actually cause you to have a low score in this section. Again, this makes sense because if you have several hundred dollars in outstanding credit payments it will be more financially difficult to take on more. These two items, the way you make your payments and how many payments you have, make up the largest percentage of your fico score.
The next three only account for about 35% of the total. The first of these is a measure of how long you have had credit. This portion is worth about 15% of the total. The loan officer wants to see a long credit history because that shows you have a track record for paying back your loans. If you are brand new to the credit game then this number will be very small. When you are starting out developing your credit rating it is imperative that you make your payments on time so you show that even with a little history you have paid as agreed.
The forth measure, worth about 10%, is the amount of new credit you have. If you have not opened many credit accounts over time and then all of a sudden you open several that may be an indication of a problem. It may mean you are living beyond your means. If this is true you may want to try buying a used car with bad credit because they are cheaper and you can get a better deal. The last factor is based on which types of credit you have. This score will go up if you different types of credit history such as some credit cards, some revolving credit, and some long term loans. Of course if you are just starting out you will find this more difficult but it is something to keep in mind. The more different kinds of credit you have the better off you will be.
One thing to remember is if you are interested in buying a car with bad credit and no money down you will not be very successful. More than likely this will not be possible but if it is you will have to pay a very large interest rate.
You are better off to try to save a little money up so you have a down payment, or maybe you can borrow it from one of your parents or another relative. Either way, buying a car with bad credit is possible you just have to know the ropes and work a little harder than someone with good credit.