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Understanding Your Credit

Here is how your FICO score is determined:


  • 35 percent Payment History: "Having a long history making of payments on time and no missed payments on all credit accounts is one of the most important items lenders look for."
  • 30 percent Amount Owed: "This measures the amount you owe relative to the total amount of credit available. Someone closer to maxing out all their credit limits is deemed to be a higher risk of late payments in the future and this can lower their credit score."
  • 15 percent Length of Credit History: "In general, a credit report containing a list of accounts opened for a long time will help your credit score. The score considers your oldest account and the average age of all accounts."
  • 10 percent New Credit: "Opening several new credit accounts in a short period of time can lower your credit score. Also multiple credit report inquiries can represent a greater risk, but this does NOT include any requests made by you, an employer or by a lender who does so when sending you an unsolicited, "pre-approved" credit offer. Also, to compensate for rate shopping, the score counts multiple inquiries in any 14-day period as just one inquiry."
  • 10 percent Types of Credit in Use: "Your mix of credit cards, retail accounts, finance company loans and mortgage loans is considered."



There are many things that you should think about before you take that plunge and get an auto loan.

If you have bad credit, and you are trying to get an auto loan, do your research. Find a dealer that specializes in sub prime financing. There are hundreds of dealerships across the United States that offer auto loans for people with bad credit. The dealerships website may be able to tell you before you go whether or not the dealership offers a special finance department. As the name implies, a special finance department specializes in helping people obtain bad credit auto loans. The internet is also a great tool to help you find these dealerships. Sites like carcredit.com and autoloans.com will help by assisting you in locating a dealership based on your location that specializes in bad credit car loans.

Dealerships that offer special finance departments are generally able to help people with little or no credit, and of course, bad credit. Not only do they have the banks on hand, they are also more understanding than dealerships that ignore the sub prime market, and even differ from their own finance departments. The special finance department is almost always separate from their regular financing department. They also have much more knowledge about their used vehicle inventory, that is to say, that they are not going to be pushing you to purchase the top of the line newest model vehicle with all the bells and whistles. They will ask you how much you want your payment to be, and work with you and the sub prime banks to try and secure a monthly payment that you will be able to afford.

Before you start your quest to purchase, it's always good to try and save up for a down payment. Even a small one under a thousand dollars to put down on a vehicle can reduce your interest rate and therefore monthly payment saving you money in the long run. If it's your first car buying experience, it might be a good idea to put off your purchase for a few months until you have trotted through a few money saving exercises. Pretend that you have your car now, and make payments to yourself for the amount you expect to pay in insurance, gas, and of course your monthly auto loan payment. This may help you in making adjustments to how much you can afford and can help you save a few dollars.

Think about maintenance and what you want to buy and how you plan to drive. Chances are that over the term of a 5 year loan you are going to have to have your brake pads replaced, and if you chose a luxury vehicle that will drive up the price of that service and just about every other service you get, including oil changes. If you are planning on ruling the off road, tires are going to be a must.

Remember, before you sign any papers, and decide on that final monthly payment, that you need to take a serious look your finances and do not take out a loan that you will not be able to afford. There are added expenses, such as insurance, and maintenance that are not included, and are required when purchasing a vehicle, remember to factor those numbers into your monthly expenses when deciding what you can afford.