3 min read • Published March 12, 22
Demystifying Credit Scores and Their Importance
What is a Credit Score?
A credit score is a numerical representation of a person’s creditworthiness, determined by a formula that predicts how likely they are to pay back a loan. This formula considers factors such as the length of credit history, bill-paying history, current debt, number and types of loan accounts, and the proportion of available credit being used.
Why Credit Scores Matter
In the United States, companies use credit scores to decide whether to approve an applicant for various financial products, such as credit cards, mortgages, and auto loans. Financing with bad credit is difficult but possible. Those with better credit scores are offered more favorable terms and lower interest rates. Credit scores typically range from 300 to 850. It’s not uncommon for people to have a less-than-perfect credit score. Experian’s 2019 study revealed that 34% of Americans have a poor to fair credit score of 669 or lower.
The Impact of a Bad Credit Score on Car Financing
A bad credit score can make it more challenging to obtain financing for a car. While there is no minimum credit score requirement to get a loan, those with a lower credit score may face less favorable terms. This often means paying significantly more over the loan’s lifespan compared to someone with better credit.
3 Tips for Financing a Car with a Bad Credit Score
1. Finance Through Savings Club
Savings Club offers a simple, easy, and convenient way to finance a car, even for those with a bad credit score. They have developed a system that helps buyers reduce the cost of purchasing a new car through group savings. By financing your car with Savings Club, you can save up to 10% compared to a traditional auto loan.
2. Plan Your Budget
When buying a car, it’s essential to consider the monthly cost of ownership. Determine your monthly payment, including financing, insurance, gas, and upkeep, as a critical first step in the car-buying process. This calculation will dictate the monthly payment you can afford. Keep in mind that the more expensive the car, the higher the monthly payment required.
3. Build Credit with Vehicle Financing
Utilize your vehicle financing as a tool to build up your credit. When you finance your car through Savings Club, they report each monthly payment to the credit bureaus. As a result, financing through Savings Club not only helps you purchase a vehicle but also contributes to improving your credit score over time.
Additional Tips for Financing a Car with a Bad Credit Score
1. Shop Around for the Best Deal
When searching for car financing with a bad credit score, it’s essential to explore various lenders and compare their offerings. This allows you to find the best possible deal and potentially save thousands of dollars over the loan term.
2. Consider a Co-Signer
If you’re struggling to secure a car loan due to a bad credit score, consider asking a trusted friend or family member with a good credit score to co-sign the loan. This can improve your chances of approval and potentially lead to better loan terms.
3. Make a Larger Down Payment
Putting down a larger down payment can reduce the amount you need to finance, resulting in lower monthly payments and potentially better loan terms. Additionally, a sizable down payment can demonstrate your financial responsibility to lenders, making them more likely to approve your loan application.
Overcoming a Bad Credit Score to Finance a Car
Don’t let a poor credit score deter you from financing a car. With options like Savings Club and the tips mentioned above, you can navigate the car financing process even with a less-than-ideal credit score. Remember to shop around for the best deal, consider using a co-signer, and make a larger down payment when possible. With the right approach and persistence, you can overcome the challenges of a bad credit score, secure a car loan, and start improving your credit for a brighter financial future.
CEO at XNV