Can I buy a car with poor credit history?
- Poor credit score means higher interest
- Lifting your score takes patience
- Match your expectations with your credit history
A low credit score and a poor credit history add up to trouble when shopping for a new car.
The result is a high interest rate loan because the buyer is viewed as a risk. In addition, the loan, if approved, could be thousands less than what the buyer wants, possibility making it impossible to purchase the car, sport utility or pickup of their dreams.
Keeping your credit history in good shape is important because new car prices continue to increase resulting in higher out-of-pocket costs. The average new vehicle loan set a record for the April through June period, $30,958, according to Experian Automotive, one of the major credit reporting agencies. The average monthly payment was $525, another record.
However, a little patience and some financial guidance can improve a person’s credit score, lower the cost of the loan by reducing the interest rate, and provide the total loan amount sought for the purchase. The key is contacting one of the three major national credit reporting agencies and seeking advice.
“If you have a poor score it can take months, it could take years to rehabilitate that score. We recommend people should get their credit report at least three months if not six months prior to making a large purchase like a car so they know what they need to work on,” said Rod Griffin of Experian Automotive.
“When you get your credit score in advance, you should get an explanation of what that means. So, if you get a credit report and a credit score from Experian, we are going to explain what that number means within the range that you receive. So are you a good credit risk, are you a poor credit risk, and what you could expect,” said Griffin, who is Experian’s director of consumer education and awareness.
Super prime is best
Typically, credit scores by Experian and others are divided into five categories with super prime being the best. The highest score usually guarantees the buyer will get the lowest interest rate for a loan.
Experian’s credit scores are: super prime, 781-850; prime, 661-780; nonprime, 601-660; subprime, 501-600, and deep subprime, 300-500. The ranges are used by Experian for automotive finance market analysis and trending purposes. Experian’s credit scores as well as scores tabulated by the two other national credit reporting agencies, Equifax and Trans Union, can differ by 20-50 points from each other. The differences may be due to when their information was last updated.
“They will tell you exactly from your credit report what is affecting that score, hurting that score. Then you can take steps to get that score in order so when you walk into that dealership or lender you know you will qualify for the terms you want. It puts the buyer in a better negotiating position,” he said.
“So, it is knowing where you stand. Do I need to wait before I purchase that car because my credit history isn’t where it needs to be and my score isn’t strong enough? Do I need to change my expectations for the kind of car I want to buy, instead of a luxury car maybe buy a basic automobile with fewer options? In those cases, waiting several months, saving more so there is a larger down payment might be the best course of action for you,” he said.
Even with an excellent credit score it still remains “buyer beware” when shopping for a new or used vehicle. That buyer should get the best loan terms available. But if the buyer suspects that the dealer is not offering the best loan rate, it’s time to use a negotiating tactic or head to another dealer.
“If you walk in with an 800 credit score, you will get the best terms available,” Griffin said. “But if the dealership comes back and doesn’t offer what you know you should qualify for, then you can tell him, ‘Look, I know where I stand. I can leave and go somewhere else and get the rates I want. I know what my credit is.’ That is empowering, it gives you negotiating power.”