Your credit score can be the key to unlocking low-interest rates and manageable monthly payments on your car loan. The all-important FICO score, ranging from 300-850, is a major factor in determining the credit tier most lenders will place you in.
The Importance of Your FICO Score
Like the scales of justice, a lower score will equal higher interest rates, while a higher score will mean much lower rates. This can amount to thousands of dollars in interest charges! A big score is like a master key that opens many doors to many lenders, while a low score opens far fewer.
Your FICO score is the first thing most auto lenders will look at to determine:
- If they want to loan you money
- What credit tier you fall into
- The rates and terms you qualify for
- How much you can borrow
- Down payment requirements, if any
How Lenders See You
All auto lenders aren’t created equal but share some common traits. Besides your score, they look at:
1. Ability: Your capacity to repay the loan.
2. Stability: Your job and residential stability.
3. Past Credit History: Your credit behavior in the past.
If you don't pass the lender's minimum requirements in these categories, it won't matter what your FICO score is—you won't get a loan! But if you do, a higher score will get you the best rates. Remember, a higher FICO score means lower monthly payments!
FYI: What's in a Name?
"FICO score" is a general term for your credit score. It stands for Fair Isaac Corp. Different regions might use different terms: Equifax uses BEACON, and TransUnion uses EMPIRICA.
Credit Tiers Explained
Navigating the world of credit tiers can be confusing for consumers, but we’re here to help you understand it better. Knowing these tiers ensures there are no surprises and you grasp the industry lingo from the start. Let’s break down the different credit tiers and what they mean for you.
A+ Credit Tier (750-850)
Also known as 0 Tier, S Tier, Diamond Tier, or Tier 1+ Credit.
Qualifications:
- 5 years of well-paid credit history
- 5+ tradelines
- Preferred: well-paid mortgage (not necessary)
- Prior/current well-paid auto loan(s)
- 24-month history for mortgage/auto loan
- Low revolving credit balances (<35%)
- Low total debt to income (<50% DTI)
- Payment to gross monthly income <25%
Benefits:
- Best auto loan rates
- No-money-down loans
- Larger loans to value (borrow more against the vehicle)
- Extended terms (72, 84, 96 months)
- Special promotions like 0% financing
A Credit Tier (700-750)
Also known as 1 Tier, A Tier, Platinum Tier, or Tier 1 Credit.
Common Issues:
- New credit accounts and inquiries
- High revolving balances (>35%)
- Small unpaid collections
Maintaining A Tier:
- Avoid new credit inquiries
- Keep balances low
- Pay bills on time
B Credit Tier (640-700)
Also known as 2 Tier, B Tier, Gold Tier, or Tier 2 Credit.
Common Issues:
- New credit accounts and inquiries
- High revolving balances (>50%)
- Small unpaid collections
- Slow payments
Improving B Tier:
- Dispute inaccuracies
- Settle collections quickly
C Credit Tier (580-640)
Also known as 3 Tier, C Tier, Silver Tier, or Tier 3 Credit.
Challenges:
- Limited credit history
- Recent moves
- Slow payments
- High credit card balances
- Current collections
- Some charged-off accounts
- Past bankruptcy (>2 years old)
Improving C Tier:
- Dispute inaccuracies
- Pay collections
- Remove collections from report
- Consider Chapter 7 Bankruptcy for severe cases
D Credit Tier (360-580)
Also known as 4 Tier, D Tier, Bronze Tier, or Tier 4 Credit.
Challenges:
- No/bad credit history
- Frequent job changes and relocations
- Repossessions, slow pays, recent bankruptcy
- Foreclosure (>3 years old)
- Multiple collections/charged-off accounts
Options:
- Seek a special finance loan specialist
- Possible no/limited money down
Advice:
- Repair credit before buying to save on finance charges
Bottom Line:
Protect Yourself and Your Identity at all times.
I hope you found this article helpful.
Paul Maloney
President: Car Leasing Concierge