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All You Need to Know About Credit and How It Affects Your Next Auto Loan or Car Lease

Our credit determines so much of our budgets and financial abilities, but what factors contribute to credit scores and how our credit scores affect our purchases can be murky. After all, it's not like you are given a lesson when you receive a credit card or take out a loan. Fortunately, information about your credit score and what it means doesn't have to remain a mystery.

Let us break down what determines your credit score and then how it affects your car buying ability. Once you know what the factors are, you will know what you can expect and what you can do.

What is Credit Score?

Your credit score is essentially a number that indicates how likely you are to pay back a loan or make payments on time. These scores are created through a complex mathematical model that is meant to show your credit risk and your financial reliability. Although information on how exactly credit scores are calculated is not available, there is an outline of the determining factors.

The two largest aspects you should bear in mind are how you pay your debts and how much debt you owe. Your credit score will be negatively impacted if you have a history of late payments on loans, a past bankruptcy, or a court ordered you to pay in the result of a lawsuit.

The Fair Isaac Corporation creates FICO® Scores that are the credit scores that most lenders use to decide your credit risk. A basic outline of how the FICO® Scores are weighted are available and show what factors are the most important for determining your credit score.

Payment History (35%)

This includes past payments due, bankruptcy or judgments, payment information, how long overdue payments are, and the time since any adverse occurrences.

Amounts Owed (30%)

Owing money on credit accounts isn't necessarily an issue, but if you're using lots of your available credit, this may indicate that you are overextended and banks can interpret that as high-risk behavior.

Length of Credit History (15%)

FICO® Scores take into account how long your credit accounts have been established, how long a specific credit account has been established, and how long since you used certain accounts.

Credit Mix (10%)

FICO® Scores look at your mix of credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans.

New Credit (10%)

Opening several credit accounts in a short period of time can be a red flag to lenders if you don't have a long credit history.

What You Need to Know About Credit Scores and Auto Financing

Many people think that only the best credit scores are eligible for the cheapest, lowest auto loans, but the reality is a bit more complicated. Experian, one of the three big credit bureaus, noted that about two-thirds of all new car loans were granted to people with "Prime" or better credit standing, and 44% of borrowers were in the highest category, "Super Prime."

While lenders use FICO® Scores to determine your credit risk, often they have different algorithms and scales that change how they view your creditworthiness. Typically, your credit score falls somewhere between five tiers: Super Prime (740+), Prime (680-739), Nonprime (620-679), Subprime (550-619), and Deep Subprime (under 550).

Keep in mind that lenders make these tiers to match their business needs and that in mid-2014, the average score for all borrowers was 681, which is pretty good. Another important factor to keep in mind is that car companies generally will place you in a higher tier with a larger down payment.

In 2015, people in the highest tier were paying less than 3% on new-car loans, and Subprime borrowers were paying more than 13% on average. So, you can see how your placement in a tier can make a huge difference.

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Stop by Our Dealership in Merrillville IN Today!

Now that you have a clearer idea of how your credit score is determined and how it affects financing a car, some of the best things to do are avoid debt, pay loan payments on time, and don't max out on credit cards. By building up your credit, you can qualify for lower rates. Speak with our expert finance team if you have more questions about your financing.


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  1. Team Imports

    3990 E Lincoln Highway
    Merrillville, IN 46410

    • Sales: 219-947-1581
  2. Audi Northwest Indiana

    3990 E Lincoln Highway
    Merrillville, IN 46410

    • Sales: 219-947-1581
  3. Team Volkswagen

    3990 E Lincoln Highway
    Merrillville, IN 46410

    • Sales: 219-947-1581
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