Bad Credit Financing Myths

When it comes to bad credit auto financing, and credit scoring in general, there is a lot of hearsay and armchair opinion-making out there.  We know how hard it can be to find the hard facts amid the hype, so we’ve put together this article to address some of the common myths.

Myths about Auto Loans for Bad Credit Buyers

1. Myth:  Credit Score is the Sole Determinant of Auto Loan Approval. To the contrary, your actual FICO® score is only one factor in a lender’s decision-making process.  They also give considerable weight to such factors as the reasonable amount of debt you can handle given your monthly income, the amount of stability you’ve exhibited at your job and place of residence, and the worth of any collateral property you’re willing to pledge to secure the loan.  Add to this any underwriting policies specific to their lending institution, and you begin to see that credit score is only one piece of a much larger picture.
2. Myth:  A Bad Credit Score Will Haunt you Forever. This myth betrays a misunderstanding of how credit scoring works.  Think of it this way:  a poor FICO® score, say 550, is not like getting a “D” on your report card that can never be expunged.  Rather, it’s like a snapshot of your overall GPA at any given time.  Just like a strong semester of A’s and B’s would raise your GPA, a strong run of good credit behavior adds positive information to your credit bureau files, thereby raising your score over time.
3. Myth: Credit Scores are Unfair to Certain Demographics and Minorities. To the contrary, the ECOA, or Equal Credit Opportunity Act, prohibits auto loan lenders from even considering any type of information like race, gender, or even marital status when making credit-related decisions, and credit scores do not take any of these factors into account.
4. Myth: Credit Scoring Represents a Privacy Infringement. Actually, many auto loan lenders use credit scoring software so that they can ask you fewer questions on your application form.  Your credit score is really just a simplified, numerical representation of information lenders must look at when deciding whether to extend a line of credit to anyone — good credit or bad.
5. Multiple Credit Inquiries Do Serious Damage to Your Credit. Lenders may see a multitude of new credit inquiries as a sign of risk — so you want to try and minimize the number within a short time period — but your actual credit score is not usually affected very much by multiple inquiries from auto loan lenders.  Rather, these are often treated as a single inquiry.

Tagged as: bad credit, credit repair, credit score