4 Reasons Why You Might Have a Bad Credit Score
Here are four factors that could negatively affect your credit score.
Unless you have an extra $20,000 lying around, you’ll probably need to apply for a car loan to buy your new set of wheels. Applying for a car loan can be a pretty lengthy process—with some loans requiring references, an in-depth work history, and more. But, in many cases, what it all boils down to is your credit score. Getting approved for a car loan depends heavily on your credit score, and the score a finance company uses may be different than the score you see connected to your credit cards or on Credit Karma.
As a standard procedure, lenders perform a credit check on you whenever you apply for a car loan. Because of this, it’s advisable for you to check your credit score first before applying. You can sign up to view your score for free on credit.com, and you can also request your full credit report for free at AnnualCreditReport.com. If your score is high, you could be sure to get an approval easily. If not, you may take some time to improve your credit score before applying for a car loan to ensure approval. If you’ve already checked your credit score, but just want to see what your loan options are, you could pre-qualify on Carzing without affecting your credit score. This will show you what your loan rates would be before applying for a loan.
“Getting approved for a car loan depends heavily on your credit score.”
If you’re wondering why your credit score isn’t great, there are many factors that could possibly lower your credit score—the biggest factor being bankruptcy. Declaring bankruptcy could cause your score to decrease as much as 200 points. If possible, you should avoid it. If you haven’t declared bankruptcy, but are still seeing a lower credit score, here are four other factors that could lower your credit score.
1. Late payments.
Making bill or debt repayments on time are extremely important. Every time you make late payments or miss payments completely, your credit score will take a hit. In addition to lowering your credit score, future lenders may view your late payments as an indication of your inability to repay any future debts, thereby lowering your risk of any future loan approval.
“Every time you make late payments or miss payments completely, your credit score takes hit.”
2. Collections/Charge Offs.
Not being able to repay any loan is like eroding your credit standing completely. If you haven’t made any payments to your creditors in over 90 days, it’s likely that your account was sent to collections or has been charged off. Your credit score will suffer if this has happened.
3. Debt Settlement.
Debt settlement means you’ve made an agreement with your creditors to pay less than you owe. Settling your debt in this manner will negatively affect your credit. While this may help you get out of debt quicker than you would’ve otherwise, this should only be done as a last resort. Taking out a debt consolidation loan is usually a better option.
“While debt settlement may help you get out of debt quicker than you would’ve otherwise, this should only be done as a last resort.”
4. Repossessed car.
Unpaid car loans can lead to repossession. A repossession can stay on your account for up to 7 years, and will likely make it difficult to get future car loans. If you’ve already had your car repossessed, don’t worry. There are still loan companies that will approve you for a car loan, although it will most likely be at a higher interest rate.
For most loan providers, your credit score determines whether or not you will be approved for a loan. A higher score generally implies less risk, so loan providers are more likely to approve your loan. While the best solution is to try to maintain all your payments and keep your credit score as high as possible, if your credit score is already less than stellar, there are still steps you can take to improve your score. You can acquire a secured credit card, or become an authorized user on someone else’s credit card, which would help you rebuild your credit. If you start taking steps to manage your credit, you could see an improvement in as little as a year!