Information from FICO discusses some myths that could help you before applying for poor credit car loans

Our thoughts

Credit-challenged individuals applying for terrible credit auto loans need to understand how different credit habits affect their FICO scores.

We’re aware of this because for the last two decades we’ve been involved with bad credit auto sales here at Auto Credit Express. It’s also another reason why we designed our website – so applicants could research issues such as bankruptcy and buy here pay here loans as well as today’s topic, understanding how the decisions you make regarding credit affect your FICO scores.

FICO credit scoring myths

FICO recently released an article that discusses some of the incorrect ideas about credit scores. Here are some excerpts from that article:

Myth:  To get a high score, run up high balances on your credit cards.
Contrary to what some believe, using a lot of credit is usually NOT good for one’s credit risk score. Roughly 30 percent of a FICO® Score is determined by the person’s reported debt, with particular emphasis on revolving credit utilization (balance divided by credit limit).  We find that high scorers typically keep their reported utilization under 25 percent on credit cards.

Myth:  Paying your credit card bill down to zero every month will boost your score.
This is a great habit to get into and we strongly encourage it. It helps the consumer firmly control her credit card usage, encourages her to spend within her means, and helps avoid runaway debt. Because the information on credit reports is limited, however, this excellent habit doesn’t necessarily translate into a higher credit score.

Here’s why. The FICO® Score can’t see – and can’t deduce — how much the borrower last paid the card issuer. On the credit report you’ll see the account balance last reported by the card issuer. But the previous month’s balance isn’t shown. Nor is the amount of the borrower’s last payment. And the way an account balance is reported, it rarely reflects the borrower’s most recent payment.  That’s because many lenders report to the credit bureau the same outstanding balance that was last billed to the borrower. Other lenders report the balance as of a particular day in the month.  So if a borrower habitually runs up a high card balance every month, his credit report will likely show those same high balances even though he routinely pays off his balance in full every month.

Myth:  To raise your credit score quickly, open a new credit card or take out a loan.
The FICO® Score considers a wide variety of information about each reported account. In this case, opening a new account will likely have more negative effects than positive effects on the person’s score. On the plus side, it may improve the person’s credit utilization rate. It may also broaden the mix of credit types on the person’s credit report although this is a minor scoring factor.  On the down side, the person will typically lose points in areas such as their length of credit history and the area we describe as “new credit,” or one’s propensity to seek new credit. Although the score will most likely drop from opening a new account, it should recover within a few months in response to responsible credit management.  The best advice for consumers is to take on new credit sparingly and only when genuinely needed.

Myth:  To raise your credit score quickly, close any unused credit cards.
If opening an account can lower your score, then closing an account must raise it, right? Actually this is rarely the case. Years ago lenders believed that having too much unused or available credit was a high-risk factor. In reality, having unused or available credit is often indicative of lower risk, and is viewed favorably by the FICO® Score. Closing a credit card typically removes available credit from the person’s credit report. That’s why closing a credit card doesn’t boost one’s FICO Score, and in some situations may actually cause the person’s score to drop.

As we see it

Consumers, especially those with poor credit, should be aware of how their credit decisions affect their credit scores.

They should also know that if they’ve been turned down for a conventional car loan it doesn’t mean their only choice now is a tote the note or buy and pay here dealer.

That’s because Auto Credit Express specializes in placing applicants with bad car credit with dealers for their best chance at getting approved auto loans.

So if you’re ready to take that first step in improving your auto credit, you can begin now by filling out our online auto loans application.

Tags: approved auto loans, Bad Credit, FICO score

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