Your credit score plays a large role in your finances, including your ability to obtain a loan and to get that loan on favorable terms. Lenders are always going to examine your credit situation thoroughly when determining whether or not to approve you. That's why knowing and understanding your credit score is so important if you need a loan.
Calculating Your Credit Score
Your credit score is a number used to represent your creditworthiness, or your ability to pay back a debt. It's calculated using items documented on your credit reports that are weighted based on importance. Your FICO score, the most commonly used credit score, is calculated this way:
- Payment History: 35%
This is the most important factor that comprises your credit rating. Missing payments or having delinquent accounts hurts your credit score more than anything else.
- Current Debt: 30%
How much you owe plays a big factor in your score. Lenders will look at the amount of debt you have in comparison to your credit limits, as well as your debt-to-income (DTI) ratio. High balances and maxed-out credit cards will lower your score.
- Length of Credit History: 15%
Having a longer credit history is considered favorable because there is more information available on your spending habits. It's a good idea to never close your old accounts.
- Types of Credit Accounts: 10%
Having a blend of properly managed accounts shows lenders that you are good at handling a mix of credit.
- Recent Credit Activity: 10%
Applying for (or opening) a lot of accounts in a short period of time suggests that you are potentially in financial trouble. On the flip side, making timely payments on the same accounts for a long period of time is a good way to improve your score.
Lenders are going to look at your credit score and use it to make decisions about your financial capabilities. Having a certain score may literally determine whether or not you are approved for a line of credit.
Obtaining a Bad Credit Auto Loan
If your credit score is keeping you from getting an auto loan, Drivers Lane is here to help. Regardless of your past credit issues, we'll work with our network of dealers to find financing that works for you, sometimes for little or no money down. We'll get to work for you if you fill out our free and secure online application.