Understanding Credit Scores
Credit Scores range from 300 to 850. With the following general rules:
35% to payment history
30% to amounts owed compared to available loan limits
15% to length of credit history
10% to types of credit used
10% to new credit requests for new loans
Effects Of Car Payments On Scores
Buy here pay here car dealerships are great because they can approve people with any credit score. However, the vehicles offered are often older so many people use them because they have no other choice as no one else would approve to loan them money. These people often hope that after a while of on-time payments, their credit scores would be high enough for other lenders to approve them for newer vehicles or for other loans.
However, it takes time and effort for lenders to report all the payment history to the credit agencies; so with smaller lenders, this can be hindering to running their businesses. This is why many buy here pay here dealers choose not to report to the credit agencies, reducing costs of running their business.
Some advertise that each monthly payment paid on time can raise the credit score by 10-15 points! This is true only if the dealers actually report to the credit bureaus. This is why it is so important for the customers, interested in raising their credit scores, to ask the dealerships whether they report their payment activities or not. Normally, larger franchised buy here pay here dealers would have the payments reported. However, there are three major credit agencies and some dealers report to only one or two out of the three. If they only report to one or two of the agencies, instead of to all three, this would mean that the customers’ credit scores would only be effected at those given agencies only.
However, if after signing the contract documents, the customers discover that the dealerships do not report the payments to the credit agencies, they can keep receipts of their payments on their own and use that to convince other lenders that they can be trusted to pay on time. These receipts can show other lenders that the customers were reliable even if their credit reports do not show the car payments.
On the other hand, if customers are late on their car payments often and the dealerships happen to be the kind that do not report the payment activities, then the late payments would not bring the credit scores any lower. However, paying late can often mean extra late fees or other penalties.
Customers with mid-range credit scores can try traditional dealers to buy their vehicles, although they would have to pay higher interest rates and deal with the complicated approval process. However, if the customers get denied for a loan with a traditional dealer, they need to remember that the in-house financing car lots can still easily approve them.
Of course, there are other ways to raise one’s credit scores including opening what is known as secured credit card accounts. These accounts, from banks or credit unions, are reported to the credit agencies and are a great way to help one’s credit scores go up even if no one wants to lend them money. The way these cards work is by having the customers pay ahead and only using that amount that they paid as their credit limit. These accounts are like re-loadable pre-paid credit card but since they get reported under the clients’ social security numbers, they can be used to show that such clients can make payments on time.