How to buy a vehicle if you are credit challenged

Improving your situation

Despite a less-than-ideal credit history, it’s not impossible to buy a car or improve your credit rating.

It’s difficult to buy a vehicle with a low credit score – but it is not impossible. And, while you might have to purchase a car or truck with a higher interest rate right now and pay higher insurance premiums, why not repair your credit so that the next time you buy, you’re able to take advantage of the best deals? Here are some tips we’ve put together to help you get a car – and better credit!

We’ll discuss:

• Stop having everyone pull your credit
• What type of vehicles to buy based on your situation
• How to best build your credit back up

Stop having everyone pull your credit

Devising a strategy

FICO stands for Fair Isaac Corporation. Your FICO score ranges from 300-850, with 300 being poor and 850 being excellent. If your credit is below 500, it is important to bring the number up. The higher your FCIO score the lower your auto interest rates.

If you apply for credit, your FICO score will drop, but not by a lot. If multiple banks and credit unions inquire about your credit between a 14-45 day period, your FICO score will consider that one inquiry as the system detects that you’re rate shopping.

What isn’t good for your credit is to take out multiple credit cards in a relatively short period of time. The system interprets that as a high credit risk. This will make your number drop. Whether it’s true or not, the system worries that you’ve lost your job and need a quick inflow of cash that will be hard to repay. Statistically, six inquiries or more indicates someone is up to eight times more likely to declare bankruptcy than people without inquiries on their reports.

When you apply for credit, you authorize lenders to pull a copy of your credit report from one or all of the three credit bureaus. Credit inquiries will be listed on your report.

Inquiries impact

One credit inquiry usually takes less than five points off your FICO Scores. Inquiries have more impact if don’t have many accounts or have a short credit history. The biggest factors for your scores are paying your bills on time and how much debt you have relative to your income.

The FICO formula

FICO Scores consider multiple credit inquires as one inquiry if the loan type involves rate-shopping, which includes auto loans. When FICO Scores are compiled in these cases, they ignore inquiries made in the past 30 days.

Older FICO Score calculations consider rate-shopping as lasting 14 days, while the newer formula figures 45 days. The lender decides which formula will determine your FICO Score.

What type of vehicles to buy based on your situation

If you don’t have good credit, it’s best to purchase the least expensive vehicle that will serve its purpose. With poor credit, you’ll pay a higher interest rate, making an expensive car even more expensive when interest payments are included.

On the other hand, you don’t want to buy a car that isn’t reliable and requires costly repairs. Try to look for that sweet spot where the car has depreciated but still has a lot of life in it.

Leasing is another option because payments are almost always cheaper. However, buying is typically ideal. If you can do it, buy an inexpensive practical car and sock away the money you would have “saved” from leasing into an emergency fund. That way you’ll have reliable transportation and peace of mind.

Whatever your situation, a person’s got to get to work somehow! You can buy a vehicle with a low credit score; however, if buying isn’t an option, lease for three years and see where your credit is at. You may be at a place where you can buy a car and save even more. Follow these tips and look toward the future! We know you can do it!

How to repair your credit

It’s important to improve your FICO Scores. OK, well, easier said than done! So, how do you go about raising your credit score?

High FICO Scores show:

• Pay bills on time.
• Lower balances on credit cards and other revolving credit.
• Credit accounts at staggered times.

While this is ideal, you would have an 850 score if you could pay everything off! So, to improve your credit it’s important to prioritize the money you can apply to getting back on track. So, what do you tackle first?

Your payment history has the biggest impact on your score, weighted as 35% of your score.

If you can pay down everything, fantastic! If not, prioritize your payment history this way:

1. Newest bills
2. Past due accounts
3. Accounts that are past due, but not charged-off
4. Accounts that are already charged off
5. Accounts sent to collection agencies

Once this is paid off, focus on remaining debt.

Pay down high account balances, focusing on credit cards first

Your credit utilization is a ratio comparing your total debt to your total available credit. This is the second most important factor that determines your score, comprising 30% of your score. Credit card balances less than 30% of your credit limit are OK. Under 10% is ideal.

Get your credit report

You’re entitled to a free credit report from each of the three credit bureaus every year. Visit AnnualCreditReport.com or myFICO.com.

Review your credit reports for errors and dispute any errors

Establish new credit

Reestablish your credit by opening up a new account and consistently paying on time. This will add positive information to your record. Try in this order:

1. Apply for one credit card.
2. If you are denied, apply for a retail store credit card.
3. If you are denied, get a secured credit card.

Credit tips:

1. Focus first on accounts in good standing.
2. Closing credit card accounts, especially ones with a balance, has a negative affect on your credit. Just don’t add on new debt.
3. Don’t be discouraged. Not paying your bills when you can’t afford them is not a moral failing on your part. Move on and continue to add positive information to your credit report.
4. Get consumer credit counseling. A professional will help you devise a plan to help you get in the clear.
5. If bankruptcy is your best option file now so you can begin getting back on track.

It takes time and a concerted effort, but you can repair your credit!

Tags: buy a vehicle with a low credit score, repair your credit
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