If you have bad credit or no credit and are looking for an auto loan you may have found a car dealer that has a special finance program. Once you give the finance manager your information they’ll ask you to bring in some documents. Is this just to prove you are who you say you are? Banks need those documents for specific reasons and require them to get you financed. Yes, of course, they need to verify your identity, with new laws in place and identity theft at an all-time high you should be glad that someone is looking out for you rather than getting mad because you have to prove you are who you say you are. So they asked you for your most recent check stub? This is to show the lender how much you can afford. They have a lot of experience in calculation this and may be doing you a favor when they set a maximum payment per month. Phone bill? Why a phone bill? If the lender needs to get a hold of you they want to make sure the phone number you provided is your phone number. If you give them someone’s phone number that does not belong to you they can rest assured that if you are late on a payment, they won’t be reaching you. Utility bill? This is to prove you actually live at the address you provided. People have asked, why can’t I just use any piece of mail? Just think about it, how likely are you to set utilities up in YOUR NAME at a house you don’t actually live at? Finally, references, usually a lender will want about three to six references. These references are needed to reach you if you move or change phone numbers. If the bank sends out your next payment book and it comes back because you moved they will need to reach you somehow and so they will call the references.
Bad credit really is a broad term. Bad credit is a descriptive term that refers to less than perfect credit but bad credit really is in the eye of the beholder. Credit may be bad to some and okay to others depending on who’s asking. If you have been extended any type of credit in the past and been unable to pay on the required terms you may have bad credit; But it’s not that simple. First of all, there are a thousand and one variables. Your credit history is a compilation of credit that has been extended to you if the form of credit cards, auto loans, home loans, and personal loans over time. Most of your credit only shows up in your credit file for seven years from when it was reported. If an institution or creditor does not report to any of the three main credit bureaus it probably won’t show up on your credit at all. Some derogatory items on your credit that are usually not considered “credit” until they show up because they are very past due and in collections. These can include utility bills, phone bills, cable bills, hospital bills, and even fines can show up on your credit. One interesting thing to note is that you may have a dozen hospital bills that show past due, but if you’ve made all of your car payments on time it will be easier to get a car loan. I once talked to a lender who said “I don’t care how they paid their cable bill I just want to know that they are going to make their car payment.”
Here’s another thing to consider. There are three main credit bureaus, TransUnion ™, Equifax ™, and Experian ™. They will all have slightly different information reported on them and sometimes very different scores as you may already know. Did you know however, that your credit score will vary depending on what type of credit you are applying for? If you apply for a credit card you may have a 625 TansUnion ™ score but when you apply for an auto loan your TransUnion ™ score is 601. This is because the credit bureau tries to determine how likely you are to pay on the required terms of each different scenario. You may have had a credit card that average payments were $80 a month and paid every payment on time but when it came time to make your $407 a month car payment you were late a few times. The biggest determining factor in determining whether or not you get a loan is not so much your score but your “credit history”.
Bad credit really is a broad term. Bad credit is in the eye of the beholder but generally means credit history that has blemishes or is less than perfect. There are almost an endless amount of credit score cards, lenders, financing options, and reasons credit will need to be looked at so it’s important to determine what is the curve on which your credit will be graded. If you are applying for an auto loan and your dealer sends you to a bank that only approves 800 fico scores and above, you must have very good credit to get approved; anything below a 720 score could be considered “bad credit”.
For the purpose of an auto loan, I will set the bar for you. If you have a credit score below 660, have late payments on your car, home loan, or installment loans in your history, or if your debt ratio to available balance is higher than 50%, you could be considered “bad credit” and should consider a program that works with people who have bad credit to secure your next auto loan.