Bad Credit - Part 3

Your Credit Score And Auto Loan Interest Rates

If you want to get the best interest rates on an auto loan, most industry experts recommend having a good or excellent credit score, a down payment and minimal debt.

While this will improve your chances of approval, it still doesn’t tell you how your credit score affects auto loan interest rates. Your credit score is relative, and not all lenders view it the same way. This means that even if your credit score is subpar, you can still be approved for an auto loan. To ensure that you also get the best interest rate possible, you need to understand how it is affected by your credit score.

Keeping Up with Your Credit Score

There are several types of credit scores for each of the 3 credit reporting agencies. These range from your FICO score to proprietary ones from Experian, Equifax and TransUnion.

Car dealerships will typically look at your “auto-enhanced” credit score, which shows how you’ve handled previous vehicle financing.

This information is included in your complete credit report, and is also used to compile your FICO score. Buy Here Pay Here lots and other car dealerships will pay close attention to,

Any missed or past due payments on previous bad credit auto loans.
Vehicle repossessions.
Bankruptcy was declared on an auto loan.

If any of these items are listed in your credit report, even if your FICO score is above subpar your auto loan might still come with higher interest rates.

What’s in a Credit Report

It’s important for you to know what your current credit score is, before you start shopping around for auto loans with the best interest rates.

The Fair Credit Reporting Act entitles you to one free copy of your credit file annually, from each of the 3 reporting agencies.

The formulas for calculating your credit score will vary, which is why it is important to keep up with all 3 of your credit reports. A low score on one report can affect the interest rate offered with the auto loan. Your credit score is determined by the following,

35 percent: your payment history.
30 percent: amount of debt owed.
15 percent: length of time accounts have been active.
10 percent: number of new lines of credit opened.
10 percent: type of different credit accounts.

Knowing what your credit score is before you start applying for auto loans will give you the opportunity to repair problem areas or dispute any errors, and this can result in lower interest rates.

Higher Credit Scores Equal Lower Auto Loan Interest Rates

If you do have a good or excellent credit score you should expect to be offered a low interest auto loan. This is because potential lenders will see you as less of a risk. Your high credit score indicates that you can manage your finances, and are more likely to repay the auto loan in full and on time. The low interest rate on the car loan is your reward for having a good credit score.

When you are looking at your 3 credit reports you might notice that your scores vary slightly, and this is due to the different formulas used by the reporting agencies. In most instances the variations are minor, and your scores will be close enough to be considered in the same range.

A tier system is used to determine what range your credit score falls in, and typically the higher it is the lower the interest rate on an auto loan.

750 and higher: Excellent
700 – 749: Good
650-699: Fair
550-649: Poor
550 and lower: Bad

The economy, where you live and who you are applying for financing with will also factor into determining the auto loan interest rate. Typically, you should expect an interest rate (APR) less than 3.5 percent if you have excellent credit. If your credit is bad the interest rate on the auto loan could be as high as 15 percent.

Industry experts do recommend avoiding car loans with 18 percent or higher interest rates.

The high interest rates often result in you paying more than the vehicle is worth, which results in an “upside-down” auto loan.

How to Lower Auto Loan Interest Rates with Bad Credit

Just because your credit is less than perfect, this doesn’t necessarily mean that you are stuck with a high interest auto loan. There are a few things that you can do to lower the interest rate. One of the most important is to take a copy of your current credit score with you to the Buy Here Pay Here dealership. This lets the financing officer know that you are aware of your credit score and the interest rates it generally garners.

Vehicle age

A vehicle’s age will play a role in the interest rate. Older vehicles might come with a lower sticker price, but you will also be paying a significantly higher interest rate. This is true even if you have good or excellent credit.

Older models usually depreciate in value and this makes many potential lenders view used vehicles as high risk auto loans.

This can decrease your chances for loan approval, especially if you have poor credit. If you are approved, the auto loan often has a high interest rate.

If you cannot secure financing for a new vehicle with your subpar credit score, you should consider applying for a used car auto loan. This might also help you qualify for lower interest rates, though you do want to avoid financing a vehicle older than 5 years.

Income to debt ratio

Your income compared to the amount of debt you owe can raise or lower auto loan interest rates. Potential lenders will take this into account when they are reviewing your auto loan application. Lenders use this to estimate your ability to make the monthly payments on time.

Being able to definitively show that your income exceeds the amount owed each month can improve your chances of being approved for a low interest auto loan, even with a poor credit score.

To calculate your income to debt ratio simply total all monthly bills and divide it by gross monthly salary.

Length of the loan

Auto loans can vary in length, and the longer the term the higher the interest rate. The term refers to the amount of time you have to pay off the loan typically,

36 months
46 months
60 months

If the term is longer than 5 years, you typically end up paying back more than the vehicle is worth. This is due to the high interest rates that come with long term auto loans.

Even if you have bad or no credit, if you can afford larger payments on a short term auto loan it is possible to get low interest rates.

Down payment

The size of the down payment does matter, especially if you want to get a low interest rate on an auto loan.

A large down payment can even result in lower interest rates on a bad credit auto loan.

The reason the size of the down payment matters is that it affects how potential lenders see you. If you only have a small down payment, you are often seen as more of a risk. This is true whether you have an excellent or poor credit score. A larger down payment is seen as less of a risk, and this might help you qualify for lower interest rates.

The Final Word

Your poor credit doesn’t have to mean that you are stuck paying higher interest rates every time you apply for a car loan. It’s also important to note that excellent FICO scores don’t automatically guarantee low interest rates. Potential lenders consider several aspects of your financial history that include your credit score.

Taking the time to make smart financial decisions that include calculating your debt-income ratio and providing a sizeable down payment can increase your chances of securing an auto loan with a low interest rate.

It is important to do your research and “shop around” before accepting any bad credit auto loan offer. Not only will this help ensure that you are getting the best interest rate, it also reduces your chances of falling for any potential auto loan scams.

How To Quickly Raise Your Credit Score

Your credit score is important if you want to be approved for a loan. It will also affect your ability to purchase anything on credit.

Getting and keeping a good credit rating does take time and patience. You can’t avoid this. However, there are a few things you can do to help it improve a little faster.

One tip to remember is that accurate negative information can never be legally removed, no matter how damaging it is to your credit score.

7 Tips to Help You Quickly Boost Your Credit Score

Before you can start working on improving your credit score, you have to know what it is. You are entitled to one free report every twelve months from the three credit reporting agencies, Experian, TransUnion and Equifax. Along with your score the report will include your complete current credit history.

Now that you know what your credit score is you can start taking steps to help it improve.

Consider the “buddy system”.

This only works with the cooperation of a close family member or spouse, and it is an effective way to quickly build up your credit history.

It entails your name being added as an authorized user on their credit account. While you won’t receive full credit for payments made on time, the little that is applied will help you create a positive credit history.

There are some downsides to using this approach that you should be aware of since they can also hurt your credit score.

You are also accountable for any bills on the account.
Late and missed payments will hurt your credit score.
Can cause tension between you and the primary account holder.

For these reasons alone, most financial experts recommend only using this as a last option when you are trying to build or repair your credit.

Report all lost, stolen and missing credit cards.

It is surprising how many consumers don’t consider this simple hack to improve their credit scores. It usually only takes a few minutes to report a credit card as missing or stolen, and in most cases it can have enormous benefits.

The most important being that it is one of the most effective ways to prevent identity theft, along with fraudulent charges being made on the account.

Most credit card issuers will simply close the account in question and open a new one. Where this can also help boost your credit score is that many banks and credit unions simply transfer the original opening date of the account to the new one. When it is reported to the credit bureaus it appears that you now have two established lines of credit. This is especially helpful since the age of the accounts comprises 15 percent of your credit score.

Not all credit issuers report lost or stolen cards the same way so it is important to ask how it will affect your score.

When are your payments reported?

You will want to note that the payment due date and the end of the monthly billing cycle are different.

Your payments will be reported at the end of the billing cycle, even though they are typically due at the beginning or middle of the month. If your payment date is during the last week it might not be reported until the following billing cycle.

The reason you want to pay attention to when your monthly payments are reported is so you can take advantage of “credit utilization ratio”.

This refers to the amount of credit you’ve used versus the amount available, and applies to every card in your name.

Financial experts recommend having a ratio of 30 percent for each card. However, if you want to quickly boost your credit score try to keep your credit utilization ratio less than 10 percent.

For this to benefit your FICO score you will also have to make sure that the payments are regularly reported during each billing cycle. This means that you might have to make the monthly payments before the actual due date.

Make a strategic payment plan.

This is actually easier than it sounds. Now that you are aware of credit utilization ratios, you know that paying off cards with higher balances will have a faster impact on your score.

Taking a few minutes to create a payment plan that allows you to quickly pay off cards with higher debt, while staying current with your other financial obligations can give a quick boost to your FICO score.

Make payments twice a month.

Nowhere does it say that you can’t make two payments on a loan or line of credit twice a month. You do want to be careful if you are paying off the debt early. Sometimes it can come with penalties that can end up hurting instead of helping your credit, though this typically only applies to mortgages and auto loans.

Most credit card companies do not charge penalties if you pay the debt off early, and making two payments during a billing cycle can help your score improve faster.

If you can afford to pay off a “big ticket” item in a brief period of time, this might be the best way for you to give a low credit score a quick boost.

Increase your credit limits.

If one of the reasons your credit score is below subpar is due to overspending, you will want to skip this step. Increasing your credit limit will only cause additional problems with your finances and score.

Raising the limits on your cards can help lower your credit utilization ratio, which is used to compile your FICO score. It is important to remember that just because you have more credit, using it will have the opposite effect on your score.

If you have made your payments on time and have a good relationship with the card issuer, asking to increase your line of credit is an easy way to see your score quickly rise a few points.

Mix up the type of credit you use.

It’s not uncommon for consumers to get stuck using the same types of credit, typically cards and mortgages. While these regular payments will help keep your credit score above the subpar range, it won’t cause any sudden increases.

If you want to give your credit score a quick nudge consider taking out an installment loan. Whether it is a two or three year auto loan or shorter in-house financing on a new appliance, simply mixing up the type of credit reported in your history can have a positive effect.

You will want to remember that this method doesn’t apply to refinancing existing loans, only new ones.

The Final Word

These tips will help you give your failing credit score a quick boost, but they are not an instant “fix-all” for a bad score. It is always important to remember that while it only took a few months for your credit to fall below subpar ratings, it can take years to get it up to good standings.

If you want to help your credit score there are two things that you must do before using any of these tips,

Keep credit card balances low.
Pay all bills in full and on time.

Simply by doing this every month you might never need to use any of these tips, but if your credit score does take a dip they can help you give it a little boost.

What To Expect At A Buy Here Pay Here Lot

Below average credit scores and limited credit histories can make it difficult for potential car buyers to secure the financing they need.

If you’ve been turned down for an auto loan by traditional lenders you are not alone. It also doesn’t mean that you won’t be able to purchase a vehicle, only that you might want to consider other financing options.

Buy Here Pay Here Financing

When your car loan application has been denied by traditional lenders due to your poor credit score or history it might be time to consider a Buy Here Pay Here (BHPH) dealership.

At a BHPH car lot the financing is usually arranged in-house, which means your monthly loan payments will be made directly to the dealership.

Since the primary goal of the BHPH dealership is to sell vehicles, your chances of being approved for financing are significantly higher than through a traditional lender.

Often all you need at a BHPH lot is a verified address and employment to drive off the lot that day in a “new” used vehicle.

BHPH Auto Lots vs. Traditional Dealerships

There are several noticeable differences between BHPY auto lots and traditional car dealerships, other than their willingness to approve your application for financing.

Unlike traditional car dealerships where you select a vehicle then apply for financing, the process is reversed at a BHPH lot. First, they will decide how much they are willing to lend and this will determine what vehicle you are able to buy.

Your monthly or in some cases bi-weekly auto loan payments might also have to be made in person, instead of being mailed in. This means that it might be more convenient for you to find a BHPH dealership close to work or your residence.

BHPH Benefits

There are a few benefits associated with Buy Here Pay Here lots that might make it worth your time to at least consider applying for financing through one. These include,

They are willing to offer financing to customers that have been turned down by traditional lending institutions due to imperfect credit scores.
If the BHPH lot reports to the credit bureau making the auto loan payments on time can help raise your low FICO score.
Most BHPH lots are willing to accept older vehicles as trade-ins, unlike traditional dealerships, and this can help reduce the amount needed for the down payment.

What Everyone Should Know About BHPH Dealerships

Before you decide to purchase a vehicle from a BHPH car lot there are a few things you should know. If you’re not familiar with applying for a bad credit auto loan through a BHPH lot, you could end up with a vehicle that costs more than you can comfortably manage.

Unlike banks and credit unions where your entire financial picture is carefully looked at, this isn’t always true at BHPH lots.

Their main goal is to sell you the “most car for your money”, which means you could easily end up with a vehicle you simply can’t afford.

To ensure that your experience at a BHPH lot puts you behind the wheel of a vehicle you can make timely payments on, here are a few tips to help you get started.

What is your credit score?

As soon as you start thinking about buying a new or used vehicle, the first thing you should do is check your credit score. Knowing your credit score ahead of time can give you some leverage when negotiating the terms of the car loan. It will also give you a good idea of what type of vehicle you should be approved for.

Even though most BHPH car dealerships are reputable scams can occur, and knowing your credit score is one of the best ways to protect yourself.

Watch out for the “Yo-Yo trap”.

Even though this is illegal, some dishonest BHPH lots will try and increase the amount of the payments or interest rates after you’ve owned the vehicle for a few weeks. If you don’t accept the new conditions of the car loan, the vehicle will have to be returned to the dealership.

While this scam is rare, thanks to stricter enforcement of federal laws, it is still important that you make sure that all the terms of the auto loan agreement are finalized before driving the vehicle off the dealership. Simply taking the time to read the documents before signing can prevent this and other problems.

Credit problems cannot be hidden.

Some people mistakenly believe that since the financing is through the dealership their credit history won’t be thoroughly checked. This couldn’t be further from the truth. Your past credit problems will be scrutinized and the dealership will have questions. It is always best to be upfront and honest, especially when financing through the BHPH lot is your only option.

How much can you afford?

The majority of BHPH lots won’t consider your other financial obligations. This might mean that you’ll be approved for a loan amount higher than you can afford.

When you are trying to decide how much car loan you can handle it is important to also factor in the cost of,

Fuel
Insurance
Maintenance
Annual registration/inspection

All of this will quickly add up, and affect how much you can pay on the loan each month.

The length of the car loan.

Most industry experts recommend avoiding bad credit auto loans that last longer than 4 or 5 years. Even though extending the length of the loan can lower your monthly payments, over time you will end up paying more than the vehicle is worth. In some cases you could still be making monthly payments on a vehicle that is no longer under warranty.

This means that you are now responsible for any manufacturers’ defects and no longer eligible to participate in most recalls, if any do occur.

There will be a down payment.

The main downside for many bad credit auto buyers is the fact that they will need a down payment. The amount will vary depending on a few factors,

Credit score/history
Type of vehicle

Financial experts recommend a down payment of 20 percent, but this can be difficult for most cash strapped auto buyers with subpar credit. Most BHPH car lots will work with you on the amount of the down payment, but you should expect to pay something before leaving the dealership with a new vehicle.

Price listed without haggling.

One advantage of purchasing a vehicle through a BHPH lot is that the listed price is usually exactly what you’ll pay. Often referred to as “no-haggle dealers” you might not be able to lower the vehicle’s asking price, but there also won’t be any surprise increases in the final loan agreement.

There is a difference between a “vehicle service contract” and a “warranty”.

It is extremely important that you understand the differences between a “vehicle service contract” and a “warranty”.

A warranty is offered through the manufacturer, and it is included in the vehicle’s closing price. These warranties typically last for 10 years or 100,000 miles, and will cover most problems that occur during this time. You might also hear them referred to as “bumper to bumper” warranties since they usually cover everything in between.
Vehicle service contracts are similar to warranties, except that they are offered at an additional cost. They are often recommended on used vehicles that might not be covered under the manufacturer’s warranty. While a vehicle service contract might cost extra, the good news is that some BHPH dealerships will let you extend the coverage for added protection.

Congratulations! You Purchased a Vehicle

Now that you know what to expect at a Buy Here Pay Here dealership you’re ready to start shopping for a dependable vehicle. The buying process might be a little different, even how you make the payments, but this could be the best option for you if you have less than stellar credit.

Just remember to take your time, do your research and come to the car dealership prepared, and you can find yourself behind the wheel of a vehicle that is perfect for your lifestyle and budget.

How To Repair Bad Credit Yourself For Free

According to Experian, in 2015 close to one-third of Americans had a credit score below 601.

If you are one of the millions of adults that are dealing with the headaches that generally come with having bad credit, you are not alone. Unfortunately, most people find out about their poor credit score when they are applying for some type of financing. This is the absolute worst time to find out that you aren’t approved due to your bad credit report.

There is some good news. It is possible to repair your bad credit. While you should have received a letter from the lender detailing why you weren’t approved for the loan, it won’t explain how you can resolve the problems. This is where we can help. In this guide you will find the information you need to legally repair your bad credit so you can get the financing you need.

You Don’t Have to Pay Credit Repair Companies

You can turn to a credit repair company for help, and there are several reputable ones. If you simply don’t have the time to devote to rebuilding your score, a credit repair company might be the best choice for you. They will have the time and resources necessary to start repairing your dismal credit score, but these companies also charge a fee for their services.

Credit Repair companies really aren’t necessary, you can rebuild your score for free.

It will take a little time, effort and careful financial planning but over time you will see your credit score start to rise, and here are the few steps to follow to get started.

Check Your Credit Report and Score

The very first step is to check your credit reports and scores. There are three main credit reporting bureaus, Equifax, Experian and TransUnion.

Under the Fair Credit Reporting Act you are entitled to one free copy of your credit report a year from each of the three agencies.

It is important to get a copy of all 3 reports since the data can vary, and it all affects your credit score. This means that there might be an error on one report, but not on the others. One error on any report could cause your credit score to drop several points.

What to Expect on a Credit Report

Once you have a copy of your reports you’ll find that they contain a lot of information. This will include basic personal details, and you’ll want to ensure that everything is accurate. You might also find previous addresses listed, and this is fine as long as the current one is correct.

Financial issues will also be on your credit report. All payments made on time, along with loans that were repaid will be included in your credit history. While these help to raise your score, the credit report will also contain a record of any liens, missed payments, foreclosures and bankruptcies. These are the items that cause your score to fall below the subprime rate.

Your financial information is divided into five categories, and this is what the credit reporting bureaus use to calculate your score.

Payment history (35 percent)
Credit utilization (30 percent)
Length of credit history (15 percent)
Types of credit accounts (10 percent)
Number of credit checks (10 percent)

Understanding how the information contained in your credit report affects your score, is the first step in knowing how to start repairing it.

How to Repair Your Bad Credit

Now that you know how poor your credit score is, it is time to start fixing the problems.

It is important to remember that you cannot have information removed from your credit report if it is accurate, even if it is responsible for dramatically lowering your score.

Trying to erase accurate information is illegal, and is a punishable offense.

This doesn’t mean that there aren’t some steps you can take to legally improve your bad credit score for free.

Pinpoint the Problems

Once you have a copy of your credit reports, you can start pinpointing the problem areas. You don’t even have to completely understand the complicated terminology used by the financial industry, if you know what is responsible for your poor credit score.

Your payment history accounts for 35 percent of your score, and is responsible for most of the significant drops. Even one missed payment will have a noticeable effect on your credit.

Thirty percent of your score is determined by your amount of revolving credit, which is compared to the limits on the accounts.

These two categories combined account for 65 percent of your credit score, and are where most problems occur.

The remainder of your credit score is comprised by how long the accounts have been open, along with the type. There are two types of credit accounts, revolving and installment. Revolving refers to charge cards and open lines of credit, while examples of installment accounts include student, auto and home loans. When you are applying for any type of financing, creditors will want to see that you are capable of responsibly managing both types of credit.

Your credit report will also list your history of applying for financing, and it makes up 10 percent of your score. If you have been actively applying for credit recently this can cause a temporary dip in your score, but most lenders also take this into account when they are checking your history. Potential lenders know that this usually only indicates that the applicant is simply looking for the best interest rate. These minor dings to your score generally disappear from your credit report in 12 months or less, making it a minor problem that you don’t need to fix.

Clean up your Credit Report

As you are going over your three credit reports, you might find errors. Even if it is only a minor mistake it is important to start disputing it as soon as possible. Once the dispute is filed with the three credit reporting agencies, they have thirty days to respond. There are a few exceptions which can extend the response deadline to 45 days, but in most cases it will take less than a month for the bureaus to dispute or agree with your claim.

Here are a few tips on disputing an error on your credit report.

A separate letter must be filed with each of the three credit reporting agencies, Experian, Equifax and TransUnion.
If there are multiple errors, a separate letter must be filed for each mistake found.
Disputes regarding errors on credit reports can be filed online or sent in via traditional mail.

Work on Building Positive Credit History

There are a few steps you can take to start building a positive credit history, instead of waiting for the negative items to disappear on their own.

One of the best ways to improve a subpar score is to open a new line of credit.

Even if you were turned down for an auto loan or other type of financing, you might still be able to secure a credit card. The interest rates will probably be higher, but if you pay the balance off each month you can rebuild your credit without spending a lot on accumulated fees.

Here are a few other steps you can take to build positive credit history.

Pay down balances on credit cards, especially ones with a high interest rate. Try to only use them when it is necessary, at least until your see your credit rating improve.
You might want to consider applying for a “credit builder loan” from a traditional bank or other lending institution. This is always a good option for anyone worried that they might abuse a credit card.
Don’t close credit card accounts once the balance has been paid off. This will make it harder for it to have a positive effect on your credit score.
When you are shopping for an auto loan or mortgage financial experts recommend doing so within a 30 to 45 day time frame. This will give you plenty of time to find the best interest rate, without it having a detrimental effect on how potential lenders view your credit.
If you have any outstanding accounts with collection agencies, you might want to think about finally paying them off. While some newer formulas used to calculate credit scores do not factor in accounts in collections, there are still a few that do.

How Long Does It Take to Repair Bad Credit?

If the negative information on your credit report is accurate it will take time for it to come off. How long will vary depending on the type.

Past due payments: 7 years from the due date of the late payment.
Foreclosures: 7 years
Collection accounts: 7 years and 6 months from the date the debt enter into delinquency.
Short sales: 7 years
Bankruptcies: 10 years from the filing date or 7 years for Chapter 13.
Repossessions: 7 years
Judgements: 7 years if the payment was made in full, otherwise it could be significantly longer.
Tax liens: 7 years from the date they were paid.
Charge-offs: 7 years from the date the account was “charged off”.

Even though this does seem like a long time to see an improvement in your credit score, it is important to remember that you should already be taking steps to rebuild it.

With a lot of patience and self-control it is possible to repair your bad credit, and best of all you now know how to rebuild it for free.

The Complete Guide To Transferring Bad Credit Auto Loans

Considering transferring your poor credit auto loan or taking over the payments on one? Before you shake hands and start signing papers, there are a few things you should know.

The first is if it is even possible to transfer the bad credit car loan, the second is whether it is a financially sound decision.

In this guide you will find all the information you need to make the best decision for your finances, whether you are transferring or taking over the bad credit auto loan.

Why Transfer a Bad Credit Auto Loan?

There are several reasons why transferring a bad credit auto loan might be a good idea. Sometimes the monthly loan payments can be harder to make than anticipated due to job loss or other unforeseen events.

Occasionally people are talked into “upgrades” at the Buy Here Pay Here lots, without considering how it will affect the amount of their monthly payments. Before long they are at risk for repossession, and this can have a devastating effect on their credit score.

Another common reason people might be considering transferring a high interest car loan is that they simply don’t want the vehicle anymore.

Regardless of your reason for transferring your auto loan, you should be aware of the steps you need to take. This applies whether you are transferring the vehicle to a friend or dealership.

The reasons for taking over a bad credit auto loan also vary, but the most common is that the potential buyer doesn’t have the necessary cash to apply towards the purchase of a new vehicle.

How to Tell if a Bad Credit Auto Loan Can be Transferred

It is important to note that not all bad credit auto loans can be transferred, but this doesn’t mean that you are stuck with the payments. If the car loan cannot be transferred the vehicle can be sold. You will have to bring the person purchasing the vehicle to the dealership or financial institution so they can apply for refinancing.

Most auto loan contracts will state whether the vehicle is eligible for transfer, but it can be difficult to find if the agreement is lengthy or comes with a lot of fine print.

If you can’t find the information you need in the contract, the next step should be to contact your lender. Not only will they be able to answer your question, some will even walk you through all the necessary steps.

How to Transfer a Bad Credit Car Loan

The difficulty of transferring a bad credit auto loan will depend on the lender, and their rules and regulations. In some instances it might only take a few minutes if the potential buyer has excellent credit, but this is usually not the case. Not everyone is fortunate enough to have someone ready to take over their high interest car loan, and this usually means that it will take more time before a qualified applicant is found.

When you are ready to transfer your bad credit car loan here are a few tips to help you get started.

Transfer the auto loan to someone else

One of the easiest ways to “get out” of your high interest car loan is to transfer it to someone else. The potential buyer must have a credit score the same or higher than yours, and they will also have to show adequate proof of insurance. If you are considering taking over a car loan this might be an appropriate time to think about the benefits.

You can avoid dealing with “pushy” salesmen.
A down payment isn’t required.
If you have a below average credit score, it might be the only way you can get purchase a vehicle.

Decide on a new lender or staying with the original one.

This is an important decision to make since it can affect your credit score. In most cases it is best to stay with the original lender, and simply modify the loan. If this isn’t an option you can also choose to apply for financing from another lender that will pay off the original loan.

There are a few risks associated with using a new lender. Some auto loans come with penalties if they are paid off early.

If the amount of the loan used to pay off the old one is higher than the value of the vehicle, you could still be making payments even though you no longer own the automobile.

You also want to take into account the fees that come with transferring an auto loan that don’t include penalties for paying it off early.

Transfer all documents to the new vehicle owner.

All paperwork pertaining to the vehicle must be turned over to the new owner. State laws do vary on where the vehicle title can be legally transferred, usually at a local branch of the Department of Motor Vehicles or a licensed notary.

Before you leave the office it is crucial that you double check to ensure that your name has been removed from the car loan. If you are purchasing the vehicle, you’ll want to make sure your name is listed as the holder of the lien. Current emission and inspection paperwork should also be turned over at this time, along with any warranties that are transferrable.

How to Take Over a Bad Credit Auto Loan

If you are considering taking over a poor credit auto loan there are a few steps that you need to follow to make the process go a little more smoothly.

Here are a few things that you will need to do.

Check your credit score.

In order to be approved to take over a car loan your credit score must be the same or higher than that of the original owner. You could still be approved if it is lower, but at a much higher interest rate. In some cases it might not make good financial sense to accept the terms of the loan if the interest rate is too high. It could cause the loan to be significantly higher than the vehicle’s actual worth.

Wait for the loan to be approved.

There is very little to do during this time, except to wait for word from the potential lender. Depending on the financial institution you can get a response almost immediately or it might take a couple of weeks.

One thing to consider if the loan is not approved is to look for a private seller, instead of trying to secure financing through a dealership or bank.

If your credit score is significantly lower than the vehicle’s current owner, this might be the best way to purchase a car without having to pay high interest rates.

Sign the necessary paperwork.

After the loan has been approved it is time to sign the paperwork, and both parties will need to participate. The seller will want to make sure that their name is removed from the lien, and yours is added in its place. Since the lender technically owns the vehicle until the loan is repair, the lien will also be in their name.

Take care of DMV requirements.

You will have to show proof of insurance when you are registering the vehicle in your name, it will also help if you have copies of the latest emission tests and state mandated inspections. Once this last detail has been taken care of, you have successfully taken over a bad credit auto loan.

There are several advantages to transferring or taking over a bad credit auto loan, but there are also a few disadvantages that you should be aware of. For many people it is the right financial decision for them, and it can even have a positive effect on your credit score.

Before you make any decisions, it is always recommended that you seek advice from your lender or another qualified financial advisor.

Need Your FICO Score? Here Are 8 Ways To Get It For Free

If you think that credit scores don’t matter, you couldn’t be more wrong.

They are actually growing in importance, and are used by everyone from insurers and lenders to employers and landlords. Your credit score is used to judge the risk associated with dealing with you financially, and this can affect almost every aspect of your life.

The Fair Isaac Corporation (FICO) claims that their scores are currently used to assess financial responsibility by an estimated 90 percent of the top lending institutions in the U.S. While this number is supplied by the company that created credit scoring, there is no denying that it will have an effect on your life.

What You Need to Know About Your FICO Score

Monitoring your credit score is important, especially if you ever plan on purchasing a car, home or any other “big ticket” item. While keeping an eye on your FICO score has never been easier, it won’t matter if you don’t know what you are looking for.

Some of the basic information everyone should know about their FICO scores include,

Credit scores typically range from 300 to 850, though these numbers can vary depending on the reporting agency. When you are looking at your credit score, you want it to be in the higher range. Lower credit scores usually mean higher interest rates on home and auto loans.

All credit scores, including FICO are generated with data provided by your creditors. These records are compiled by the three major credit reporting agencies, and turned into your financial report and FICO score.

An important step that everyone should follow is to keep a close watch on their credit reports. Everyone is entitled to one free credit report from each of the three agencies. Most financial experts recommend requesting one every few months from a different reporting company, instead of collecting all three at once.

Consumer Reports stated that 28 out of the 60 versions of your credit score produced by FICO are regularly used by top lenders. This only emphasizes how important it is to check it every few months.

What’s A Good FICO Score?

Since there are several systems that calculate credit, including FICO scores , it can get a little confusing trying to determine what a “good” number is.

Even though the range for a good or bad FICO score can vary slightly, most lenders agree that 740 or higher will probably get you the lowest interest rates on home and auto loans. You should also remember that your credit score is not the only factor that will determine loan approval or even guarantee low interest rates.

Individual lenders have their own criteria that will not only include your credit score, but a list of other items that will all be factored in together. If you are one of the millions of Americans dealing with bad credit scores, it’s nice to know that it’s not the only factor that will be used to determine loan approval.

If you need some guidelines to follow when you are trying to determine where your credit score falls here is the unofficial range used by the Fair Isaac Corporation.

Bad Credit: 300-629
Fair Credit: 630-689
Good Credit: 690-719
Excellent Credit: 720 and higher

According to financial experts if your FICO score is below 620 you can expect to pay higher interest rates, and experience difficulty securing loan approval.

How to Get Your FICO Score for Free

With the growing importance of knowing your current FICO score, it only makes sense that there are several ways that you can monitor it for free.

You no longer have to sign up for credit cards you don’t need or subscribe to a service to receive regular reports and updates. You can take charge of monitoring your FICO score, and here are 8 easy ways how you check it for free.

Discover

One of the fastest and easiest ways to check your FICO score is via the Discover website. You do not have to be a member, card holder or even sign up for one, it is a free service that they offer to everyone. In less than 5 minutes, in most cases, you can have a copy of your credit score.

Banks and Credit Card Companies

While you do have to be a card holder or have a loan account with the following lenders, they do provide you with free access to your credit scores. Simply log into the website and you’ll find your current score listed on your statement. Not only can you check for any errors in your account, you can also monitor your FICO score on a monthly basis.

Bank of America
Citi Bank
American Express
Chase Slate card
Barclaycard US
USAA (via CreditCheck1)
Merrick Bank (GoScore)
Wells Fargo (mobile banking app)

Credit Unions

Unlike traditional banks Credit Unions have only recently begun offering members free access to their FICO scores. Currently there are only a few officially listed which include,

Pentagon Federal Credit Union
Digital Federal Credit Union

If you are a member of a Credit Union the best advice is to ask if your branch offers this convenient free service. You might also find it listed on your monthly or quarterly statements, but this can vary.

Checking Accounts

Many financial institutions are now providing customers with free access to their FICO score even if they only have a traditional checking account. While most will post current scores on loan or credit card statements, only a few are including it on checking accounts.

Before you use another method to retrieve your FICO score, it is best see if your bank offers this service with your checking account.

Loan Applications

It is important to note that this is only a “one time” way to check your FICO score for free. You don’t want to continuously fill out loan applications every time you want to check your credit score. Not only is this time consuming, it will actually hurt your overall score.

According to the Dodd-Frank Act you have the legal right to see your credit score if your loan application is denied or if you believe that you weren’t offered the best interest rate. This approach to viewing your FICO score only works when you are filing out the application in person, not if you are using an online lender.

Auto Dealers

Some auto dealerships, including a few Buy Here Pay Here Lots lots will share your FICO score with you, but only if you are applying for financing with one of their lenders. While this method will only allow you to check your credit score every few years, unless you frequently purchase new vehicles, it is one more way that allows you to monitor it for free.

College Loans

Not all student loan lenders provide their customers with free copies of their credit scores, but the Sallie Mae Smart Option undergraduate program does. They not only provide borrowers with free access to their credit scores, but their co-signers as well. This method does only apply to a select group of people, but if your student loan is through a different lender you might want to check with them to see if they offer the same services.

Credit Counseling Services

You will want to remember that most credit counseling services do charge a fee. The good news is that FICO has started a free program. 30 credit counseling agencies are participating and will help you learn how to manage your money for free.

A complete list of the participating services is not available, but you can easily find the help you need by contacting the National Foundation for Credit Counseling.

One important tip to remember before using any credit counseling service, even a free one, is that if they won’t provide you with your FICO score it is probably a scam.

Avoid These Scams

It seems that as there are more ways to check your FICO scores for free, the number of scams also increases. Not only does falling for one of these cons usually end up costing you fees, it could also comprise your identity.

Giving out your personal information is one of the most common ways identity theft occurs.

While the number and type of scams promising to get your FICO scores are constantly changing, there are a few red flags that you will want to watch out for. These typically include,

Being offered a “free” trial period.
Told that your credit card or other personal information is required.
A “subscription” is needed.
Unsolicited links and attachments are sent to your email.

Downloading the attachments or clicking on the links can leave you open to malware, viruses and even put your personal information at risk. With so many safe and legal ways to get a copy of your FICO score, there is no need to ever have to use someone else’s services.

Take Control Of Your FICO Score

You don’t need to pay a company or even a lender to get a copy of your credit score. You can easily get it yourself for free.

Knowing you current FICO score is a part of being financially responsible, and now there isn’t any excuse for you to not know your own score.

Have Bad Credit? You Can Still Buy A New Car

A few missed or late loan payments, along with substantial credit card debt can make getting a new car seem impossible.

After all, what financial institution would take a risk on someone with a poor credit score and preexisting debt? The answer may surprise you. While most financial experts don’t recommend taking out a new car loan if you are dealing with bad credit, getting approved isn’t as impossible as you might think.

If you desperately need a new vehicle to get to work or just around town, keep reading to see how you could possible get the financing you need.

Can You Get Financing with Bad Credit?

It might surprise you to learn that it’s not impossible to get a new car loan, even if you have bad credit.

The financial crisis caused by the collapse of the housing market is no longer being felt, and now lenders are seeing the potential value in approving what was considered a high-risk loan.

Lenders know that a new car has more value, and this will help repay the loan is the buyer is incapable of making the monthly payments. A new vehicle typically requires less maintenance, and this means that the buyer’s money is more likely to go towards repaying the loan and not on expensive repairs. Even with bad credit, lenders are now more willing to offer financing on a new vehicle.

This also applies to getting approved through the dealership’s financing department. Many new car dealerships are also willing to approve a bad credit loan application, though the interest rates are usually higher. Even though the dealership may not be making a large profit off this vehicle sale, they are establishing a relationship with the customer that could last for years. This is where car dealerships expect to make their profit, on referrals and return sales.

The Steps You Need to Take

Knowing the steps you need to take before you apply for a bad credit new car loan can dramatically improve your chances of being approved. There are only a few things you need to do, and when you are driving off the lot in your new vehicle you’ll be glad that you did.

Here are the few details you need to take care of before you start shopping for your new car.

Prep Early

The first, and most important step, if you want to finance a new vehicle and have bad credit is to start preparing for your purchase early. If possible, at least three months in advance.

Lenders also know that emergencies can happen, and not everyone will be able to take the time to prepare to apply for vehicle financing well in advance. Don’t worry, most lenders will still work with you and give you the time you need to get your paperwork in order. If you are lucky enough to be able to plan your new vehicle purchase in advance, here are a few things you can do to help the loan process go more smoothly.

Experian recommends getting a copy of your credit report at least 3 months before you are planning on financing a new car. This will give you time to take care of any items that need your immediate attention like errors and outstanding debts.
Since your credit rating is below 620 and is considered subpar scheduling a meeting with a credit counselor could help get on the right track towards being financially responsible.

Your credit report will have black marks, and they cannot be removed unless they are errors. If you are meeting with a credit counselor they can help you get any mistakes erased from your reports, and this could cause your score to rise before you apply for the loan. Not only can this increase your chances of being approved, it could also result in lower interest rates.

Get Pre-approved

Once you have a copy of your credit report and have taken care of any errors and outstanding debt, it is time to start applying for bad credit new car loans.

Since you already know that your poor credit score will translate into higher interest rates, most financial experts recommend applying with several lenders. While one might offer you a loan with an interest rate of 18 percent, another might be lower.

Your interest rate will be set by the lender, and it is possible to get a better one if you have the time to “shop around”.

Some of the financial institutions that might be willing to offer approval on a bad credit auto loan include,

Banks
Credit unions
Online lenders

According to Experian applying for multiple new car loans won’t hurt your credit, since lenders will realize that you are only searching for the best interest rate.

After you have been pre-approved for new car financing it is time to choose a dealership.

Bring Documents

Before you head into the finance office at the dealership you will want to have your paperwork in order.

Appearing well organized will go a long way towards convincing a potential lender that you really are a low risk option, regardless of your bad credit score.

The documents that all finance companies will require when you are applying for a new car loan with bad credit typically include,

Driver’s License
Copy of your most recent pay stub
Utility bill in your name
Three personal references

With these documents you can establish your residency, ability to make the monthly auto loan payments, and provide the potential lender with a list of contacts. Even though you already know that you have a below subpar credit rate, bringing a copy of your score or recent report might also be helpful when you are discussing possible financing with a potential lender.

If any other documents are needed the lending agent will let you know before the initial meeting is over. These can usually be brought when it is time to sign the loan agreement.

Stay in Your Price Range

One important tip to remember is that just because you can afford a higher priced car, this doesn’t make it a smart purchasing decision. Before you even start looking for a new car, you should already know exactly what you can afford in monthly loan payments. This way you don’t end up borrowing more than you can comfortably afford to pay back.

Sometimes, even with bad credit, loan applicants can be pleasantly surprised and qualify for a higher priced vehicle.

Even if you can still afford the loan payments each month, it is still not a good idea to go above the amount you were originally planning to seek approval for.

The extra money you are saving each month by sticking to your original loan amount can be used to pay other bills or set aside for your next down payment. Even if your credit score is still poor after the loan has been paid off, being able to make a larger down payment might allow you to still qualify for lower interest rates the next time you apply for a new car loan.

Know the Difference Between a “Good” Deal and a “Bad” One

Auto Industry experts warn bad credit new car buyers to be careful, and pay attention to the numbers before signing any loan agreement. Just because you were approved for the auto loan, doesn’t mean that you are necessarily getting the best deal for your money.

Make sure that the total repayment amount, with interest isn’t too high, and refrain from accepting “cash back offers”. These are often made to car buyers with bad credit in an effort to keep them from noticing how much they are paying in interest rates.

In some cases new car buyers with bad credit could end up paying twice the original price of the vehicle.

Don’t “trade-up”

It can be tempting to take advantage of a car dealership’s offer to “trade up” to a higher end vehicle, especially if your monthly payments won’t increase at the time. This is a common incentive new car dealerships frequently offer to their credit challenged customers.

Even though it can seem like a great way to purchase a nicer new car, you will end up paying extra on your next loan. After you’ve made you monthly car loan payments on time for one year, most credit counselors recommend applying for refinancing with a lower interest rate instead of trading up to a nicer vehicle.

The lower interest rates will help you save money that can be used to either pay the existing new car auto loan off, or put aside for a down payment on a newer model.

Paying off your existing car loan before trading up will also make it easier for you to make the monthly payments, and this is one of the easiest and most effective ways to raise your poor credit score.

Congratulations! You’ve Become Financially Responsible

Once you’ve done your research, looked for a vehicle in your price range and made all your payments on time, you have just taken a big step in becoming financially responsible. Not only have you improved your credit score, but you have also established healthy financial habits that will help you anytime you need to make a large buying decision.

Top 20 FAQ About Your Bad Credit Auto Loan

Congratulations! Your bad credit rating didn’t stop you from getting approved for an auto loan.

Once the excitement of driving around in your own vehicle has died down, and it’s time to make the first payment on your bad credit auto loan you’ve probably discovered that you have a few questions.

It’s not uncommon for car buyers to have several questions and concerns about their high interest auto loan after the excitement of purchasing a vehicle has finally worn off. To help consumers find the answers they need regarding their bad credit car loan, we have put together a list of their most frequently asked questions.

20 Questions About Your Bad Credit Car Loan

When will the first monthly payment on the bad credit auto loan be due?

You have the option of choosing to make your first monthly payment 30 or 45 days from the date you took possession of the vehicle. If you already have several bills due at the same time each month it might be best to choose to make a payment every 45 days. The only downside is that the amount you owe each month will be slightly higher.

Your bad credit auto loan contract will also have the due date for the monthly payments listed for easy reference.

Will past and present monthly statements be made easily available?

You will be receiving your monthly bad credit auto loan statement either by post or email, making it easy to access your current information. Most lenders will also allow you to view your past and present statements online, once you have set up an account.

Regardless of whether you choose a “paper” or “paperless” account, you should also be saving copies of the monthly statements for your records.

Not only will this make it easier for you to calculate interest paid at tax time, it also allows you to keep an eye on your account.

Are there different options available for making payments?

While this will vary slightly, depending on the type of lender, most offer a variety of payment options. If the auto loan is through the Buy Here Pay Here lot you can usually make the payment in person at the finance office. This is a convenient way to ensure that the payment gets there in time so you can avoid late fees and dings to your credit history.

Other payments options typically include paying online, mailing in a check and some lending institutions even provide you with a toll free number to call.

Before you choose a payment option you do want to make sure that it doesn’t charge a fee.

Will I be able to get a copy of the amount of interest paid on the bad credit auto loan annually?

The amount of interest you pay each month on the auto loan is listed on the statements. You can also find a record of the amount of interest paid the previous year in your online account. Your lender should also send you a copy annually for your tax records.

Is there someone to contact with questions about the auto loan?

If there isn’t anyone to contact when you have questions about your bad credit auto loan, you might want to consider looking for a different lender. You should always be able to contact someone in the finance department during normal business hours, and some of the top rated subprime lenders are even available on weekends.

Will it be possible to pay off the bad credit auto loan early?

You can pay off a bad credit auto loan early, but there are some pros and cons associated with doing so. The upside is that there will be one less bill to pay monthly. Paying a loan off in full will also help raise your credit score, though it will take some time before it appears on your report.

The downside to paying off a bad credit auto loan early is that there won’t be a continuing record of timely monthly payments.

Showing that you can make loan payments on time is one of the best ways to raise your credit score. Some lenders might also charge an additional fee when an auto loan is repaid early.

Are there any penalties or fees associated with paying off the auto loan early?

The answer to this question will depend on the lender, and it is one that you will want to ask. Most brick and mortar financial institutions do not charge a fee or assess any penalties if you pay off your high interest auto loan early. Some online lenders and even a few less than reputable Buy Here Pay Here dealerships do charge a fee if you pay off the loan early and the amount can vary.

The best advice is to ask your lender before you consider paying off a bad credit auto loan early.

Can my loan be transferred to another lender?

Most lenders will not transfer an auto loan to another lender, especially if you have poor or bad credit. The majority of financial institutions simply do not want to assume the risk you represent.

Generally if you want to “get out” of a bad credit auto loan you will have to sell the vehicle and the new owner will have to apply for financing. Refinancing the auto loan through another lender is another option, but it might also entail fees and certain penalties.

If the auto loan is assumed will my payments stay the same?

Your monthly payments will not stay the same if the auto loan is transferred. If the vehicle is sold and you followed the proper steps, the new owner is now responsible for making the payments. This means that there is one less bill for you to pay every month.

If the auto loan was transferred due to refinancing, your monthly payments should be lower. This is one of the main reasons consumer choose to refinance their bad credit auto loans.

Will transferring my auto loan hurt my credit rating?

As long as the monthly payments are made on time, transferring your high interest auto loan won’t hurt your credit rating. In the long run, it could actually help it improve. The lower monthly payments that are typical of refinancing or transferring an auto loan are easy to make on time, and a steady record of this will result in a higher credit score.

Another bonus to transferring a bad credit auto is that it often comes with a lower interest rate.

How long will it take to receive the vehicle’s title once the auto loan is paid off?

The length of time it takes for you to receive the title to a vehicle once the auto loan is paid off will vary. If the title is being mailed to you it can take four to six weeks, but it rarely takes this long unless it is an out of state lender.

Some Buy Here Pay Here lots will allow you to pick up the notarized title in person as soon as the final payment is made, while others require a few days to finish the paperwork. It is also best to check with your lender to find out when the vehicle title will only be in your name.

When will the final loan payment show up on my credit report?

Final payments on auto and any other type of loan typically take 30 days to show up on your credit report. This is because the three major credit reporting agencies only update once a month. If the final payment on a bad credit auto loan has appeared on your credit report, and it has been over 60 days, it might be a good idea to speak with your lender to ensure that all of the paperwork has been properly submitted.

What happens if I can’t make a monthly payment?

If for anyone reason you can’t make a monthly payment or its going to be late, it is important to immediately contact the lender. In some cases the due date can be extended so the late payment doesn’t affect your credit report. The lender might also recommend refinancing as a way to lower the amount of your monthly payments.

The majority of lenders will work with you to ensure that you can keep your vehicle.

They would rather extend the length of the loan and receive lower monthly payments than have to take possession of your vehicle, which generally results in them losing money.

Will my information be sold by the lender?

This is an important question to ask, unless you don’t mind getting bombarded by advertisements. Most reputable lenders will not sell your private information, though you should be advised that some details will be available for the public to access. This is especially true whenever you purchase a “big ticket” item.

Your social security number and any other personal identifying information should be kept private, and in some cases it is illegal for any financial institution to sell it or make it public.

Will job loss affect my bad credit auto loan?

Job loss unfortunately can happen for any number of reasons, but it doesn’t always have to affect your bad credit auto loan. If you are fortunate enough to qualify for assistance during unemployment, making your monthly loan payments on time might not be a problem. If the loss of your job is making it difficult to keep up with the loan payments, it is important that you speaker with the lender immediately.

Letting the lender know ahead of time that you are having financial problems might make it possible for you to keep your vehicle, while you are looking for employment.

If I move do I have to let the lender know the new address?

Even if you are receiving your monthly statements via email and making payments online, it is still important to keep your lender apprised of any changes to your address. In most cases you can simply fill out short form online or even mail in your new address with your monthly payment.

Can I extend the length of the bad credit auto loan?

Auto loans can be extended, even if you have poor or bad credit. If you need to lower the amount of the monthly payments, you can speak to your lender about refinancing through them. You might also want to also consider refinancing through a different lending company. In some cases this can result in lower monthly payments, without the length of the auto loan increasing.

As long as the payments are continued to be made on time extending the length of the loan won’t have a negative effect on your credit.

Is it possible to have a co-signer removed from a “high risk” auto loan before it is paid off?

There are two ways that a co-signer can be removed from a bad credit auto loan, even if it is not paid off. You can ask your lender to remove the co-signer if you can show your income has increased enough to assure them that you can make the monthly payments by yourself.

You can also apply for refinancing through another lender without a co-signer. While this is often the easiest way to remove a co-signer from an auto loan, you could incur fees and penalties from your original lender.

Most financial experts recommend simply leaving the co-signer on the loan, and continuing to make the payments on time.

If my credit score improves before the auto loan is paid in full can I get a lower interest rate?

It’s not uncommon for consumers to notice that their credit score has improved after they have been making regular payments on their auto loan. When your credit score is high enough you might qualify for lower interest rates, and this could mean that it is time to refinance your auto loan.

Refinancing an auto loan after seeing an improvement in your credit score could translate into lower monthly payments, without increasing the length or amount of the loan.

How long after the auto loan is paid off do I have to wait until there is an improvement in my credit score?

According to Experian it usually only takes 30 days for you to see an improvement in your credit score, once the auto loan has been paid off. If you haven’t noticed a change after 90 days, it might be a good idea to request a free copy of your credit report. You are entitled to one free credit report each year from each of the three agencies.

If you have any additional questions about your bad credit auto loan you should speak with your lender as soon as possible. Not only will you get the answers you need, it can also prevent any confusion that could end up having a negative effect on your credit report.

Everything You Need To Know About Credit Repair Companies

If you have a bad credit score it could be costing you money.

You can expect to pay higher interest rates on auto and other loans. Your poor credit history will also make it difficult for you to secure almost any type of financing, and this can affect all aspects of your life.

Fortunately you don’t have to be stuck with a bad credit rating for the rest of your life. There are some things you can do to improve your credit score. One way is to contact a credit repair company, but there are some things you should know.

How Credit Repair Companies Started

Companies promising to fix your poor credit score are not new. They have been around since credit agencies first started reporting consumers’ scores and payment histories to potential lenders.

Over the last ten years credit repair companies have become more prominent, and it is almost impossible to avoid seeing one of their ads.

After the collapse of the housing market and subsequent economic crisis in 2008, many people found themselves with more debt than they could manage. Foreclosures, vehicle repossessions, late and missed payments all took a toll on consumers’ credit.

Now that the economy is recovering and people are starting to get back on their feet many are taking a look at their credit reports and scores. While a credit repair company can’t make correct negative information go away, they can help you fix errors that are lowering your score. This will not only make it easier for you to get approval for an auto or other type of loan, but it will also help you save money by avoiding high interest rates.

How Credit Repair Works

A study recently conducted by the Federal Trade Commission discovered that one out of five consumers had an error on their credit reports. Even one small error is enough to drop your credit score several points. This will affect everything from your ability to secure a loan to the amount of the down payment and interest rates.

It is classified as an “error” if it doesn’t meet the following three standards, according to the Federal Trade Commission.

Credit reports must be 100 percent accurate.

Reporting must be fair.

Data must be supported by facts.

If the information contained in all three of your credit reports does not meet the criteria, it is considered an error and steps should be taken to correct it immediately. While you can “do-it-yourself”, sometimes it is best to let a professional take care of repairing your credit.

Credit repair simply means correcting any errors found on your three reports. It is important to remember that only mistakes can be removed, and not negative information that is correct. When an error is identified the credit repair professional will help you find documentation that supports your claim, and work with the reporting agencies to have it removed from your report.

Some of the most common causes for errors to appear on a credit report include,

Bills a former spouse was responsible for under the divorce decree.

Identity theft resulting in fraudulent accounts.

Mistakes made by one or more party responsible for gathering and reporting various credit data. (credit card companies, lenders, debt collectors, etc.)

Once the credit repair company has filed a dispute, it should only take 30 to 45 days to see an improvement in your score.

The reason for this relatively short timeline is to help ensure you don’t have to wait to get the line of credit you need.

What To Look for in a Credit Repair Company

If you believe that there is an error on your credit report, it might be time to contact a professional. While you can dispute errors by yourself, sometimes it is worth it to get help from an expert. They have the time and resources to devote to your problem, and know the specific documentation needed to support your claim.

There are thousands of credit repair companies and professionals to choose from, and not all are the same.

Unfortunately some credit repair “experts” are less than reputable and choosing the wrong one can leave you with the same problems, while still costing you money in fees.

While flashy advertisements promising instant results might get your attention, it shouldn’t be the deciding factor when you are choosing a credit repair company. Some of the things you will want to look for to ensure that you are getting the best service include,

The credit repair company should be aware of your rights, and explain each one to you in complete detail. This should be done before any contracts or agreements are signed. The credit repair specialist should also be able to answer all of your questions to your satisfaction.

It is important that the credit repair company takes the time to understand why you are disputing an item on your credit report. If they aren’t willing to listen to your story, chances are they won’t be able to effectively resolve your problem. You want the credit repair company to make sure that information in the reports meets the required criteria for it not to be considered an error. Otherwise hiring them will be a waste of your time and money.

A top rated credit repair company will be able to clearly explain exactly the type of services they can perform for you. Before you sign the agreement you should know exactly what you are getting, and the type of results you can expect.

If a credit repair company can’t provide and guarantee these three simple things, then you will want to find someone that can.

How To Avoid Credit Repair Scams

With all of the importance that is placed on a credit report, it’s not surprising that there are plenty of scams promising to fix any negative data for one low fee. This is only one of the common credit repair scams, and it is unfortunately easy to fall for any of them.

Some of the common signs that often indicate a credit repair company or expert might not be reputable typically include,

Guaranteeing to erase bad credit information permanently.

Promising to boost your low credit score to a “fair” or “good” rating.

Stating that they can provide same day results.

Promising to erase all bad credit scores from a FICO report.

Even though you have probably seen these and similar ads on billboards, television and other media outlets these are promises that credit repair companies simply cannot keep, and usually indicate that they are only trying to take your money.

No one, including credit repair companies, can remove any information from your report as long as it is accurate.

It is illegal for these companies to use the strategies they are advertising, and in most cases it is also impossible.

According to the Federal Trade Commission there are a few factors that often indicate a credit repair company is dishonest, and knowing what to look for will save you time and money. Some of the things to be cautious of when you are looking for help in repairing bad credit include,

The Credit Repair Organizations Act states that a company or individual cannot charge you until the promised services are completed. This means that you should never be charged upfront.

You are not informed of your rights before signing a contract, along with the steps you are able to take to correct an error for free. You can petition the credit bureaus to remove any mistakes, but in some cases it does help to have the experience of an expert.

If the credit repair company advises you not to contact the three major credit reporting services, it is probably a scam. If you do not have all three of your credit reports, it is impossible to accurately tell if there are any errors.

Since accurate and current negative information on your credit report cannot be legally removed, and company that promises to do so is one that shouldn’t be trusted.

If you are advised to dispute all of the information in your credit reports, regardless of accuracy, it is best if you seek help from a more trustworthy source.

Some credit repair companies will even suggest that you apply for an Employer Identification Number. Using this, instead of your social security number will generate a “new” credit identity and report with a higher score. Not only is this dishonest, it can also be illegal.

Cost of Repairing a Credit Report

The cost of repairing your credit report will vary depending on a few factors. Where you live and the type of services you need all play a role in the cost, along with the company. Fees will vary, and it is important to get everything in writing before you sign any contract.

It is important to note that the Credit Repair Organizations Act makes it illegal for these companies or even a solo professional to charge you before they have completed the job. If a credit repair company ever demands payment before starting work, you will want to report them to the Federal Trade Commission and find someone more reputable.

You should be aware that if you follow illegal advice, you can also be held liable.

It is illegal under federal law to misrepresent your Social Security number, supply false information on a loan application or apply for an Employer ID number in an effort to receive a new credit report. This is true even if you were advised by a credit repair company.

Are Credit Repair Companies Really Necessary?

When it comes to deciding if a credit repair company is really necessary, this will depend on your unique situation. In some cases you can probably dispute an error on your credit report by yourself, but other times you might need some expert help.

If you find that you do need a credit repair company you want to make sure that it is reputable.

The last thing you want is to find yourself in legal trouble, along with being out the required fees. Take your time and make sure that you ask the right questions, and you’ll find a credit repair company that can resolve your problems quickly and legally.

The Complete Guide: How To Improve Your Credit Score

Your below average credit score is not only making it difficult for you to secure a low interest auto loan, it is also affecting your ability to purchase other “big ticket” items.

If you are tired of your bad credit score affecting your ability to purchase anything from a vehicle to a home, there are some steps you can take to start improving your rating. It will take time, in some cases several years, but with hard work and consistency you slowly start improving your poor or bad credit score.

3 Things You Can Do Now

There are several steps that you can take to start improving your subpar credit score, and there are three that you can do now.

Review your credit report.

The most important thing is to check your credit report. If you don’t know what your score is and why it is so low, you won’t know how to start repairing it. Errors can also occur in a credit report, and this is another reason why it is important to check it regularly.

Your credit report will show all of the information used to calculate your score. This includes data on any missed or late payments, which will cause your credit score to drop. If any mistakes are found on your report it is important to deal with it immediately by contacting the credit bureau.

Sometimes all it takes to improve your credit score is to remove an error from your report.

You are entitled to one free credit report every 12 months from each of the three credit reporting agencies. Most financial experts recommend requesting a copy of your credit report from a different agency every four months to ensure you are well informed.

Make payments on time.

Late and missed payments are the most common reasons credit scores start falling. Setting up reminders when payments are due is one easy and convenient way to ensure it always gets sent in on time. Some financial institutions offer the option for automatic payments. The money is automatically deducted from your account on a preset date so you don’t have to worry about it. The only downside to this convenient option is that only the minimum payment is withdrawn each time so you don’t always have a chance to pay off a high interest auto or other loan in a shorter amount of time.

Lower amount of debt.

It might not be easy, but lowering your amount of debt is a great way to start improving your credit score. It will also help you get a handle on your spending. Financial experts recommend paying off your credit cards with the highest interest rates first, while continuing to make the minimum monthly payments on your other loans.

Once the high interest credit cards are paid off the money can be put aside for a down payment, which can go a long ways towards lowering the interest rates next time you apply for a bad credit auto loan.

Since you will still be making payments on the lower interest cards, your credit report will still continue to show a positive history.

Tips On Improving Your Credit Score

There are a few other things you can also do to start improving your credit score. The following tips are easy to implement, and if you use them consistently you’ll soon be able to qualify for auto loans with a lower interest rate.

Pay attention to credit card balances

The amount of revolving credit you have will affect your score, and smaller is always better. To help boost your rating pay off your balances and try to keep them low.

Financial experts recommend keeping a smaller amount of revolving credit, typically around 30 percent or lower.

You also want to make sure that your monthly payments are the ones being reported to the credit bureau and not your balance. This will cause the amount of your revolving credit to be higher than the usage, and this will have a negative effect on your score.

Get rid of “nuisance” balances

“Nuisance” balances are usually small and occur when you use several cards, instead of just sticking with one. While making monthly payments on time will help your credit rating, having too many can have the opposite effect.

Equifax and the other major credit reporting agencies recommend paying off most of your cards, and only using one or two with the lowest interest rate.

This way you are still able to make the purchases you need, without cluttering up your credit report.

Another advantage to only using one or two credit cards is that there are fewer payments to remember to make each month.

Don’t get rid of all old debt

It is actually good to have old debt appear on your credit report, even though many consumers try to have it removed. While missed and late payments, bankruptcies and repossessions all have a negative impact on your credit score, old debt that is paid off has a positive effect. It shows that you successfully paid a loan off, and potential lenders view this as a sign that you might qualify as a low risk borrower.

This usually translates into an easier approval process when you are applying for an auto loan, along with lower interest rates.

How to Keep Your Credit Score from Falling

It doesn’t matter if your credit score is considered excellent or poor, you don’t want it to fall. The biggest reason a credit score drops are due to missed or late payments, but there are other factors that can contribute to a loss in points. Knowing what these are will help you keep your credit score improving, instead of having to watch it fall.

It is important to re-establish your credit history if your score is below average. One of the best ways is to open a new account and pay it off on time. Even though it will take a while to show up on your credit history it will prevent your score from falling, and eventually help it increase.

You do want to check your credit score at least once a year, and some financial experts recommend doing so more often. As long as you request a copy of your credit report from one of the three major credit reporting agencies, Experian, Equifax and TransUnion, it will not affect your score.

Refrain from opening several lines of credit in an attempt to maintain or improve a bad credit rating. Not only will this appear to potential lenders that you might be a high risk, it can also lower your score. Opening several credit accounts at the same time can cause some lenders to question your ability to make all of the various payments on time. It also makes it harder for you to keep track of when all of the monthly payments are due, and missing even one can cause your credit score to plummet.

It is important to remember that just because you closed an account it isn’t automatically removed from your credit report. In some cases it can stay in your history for up to seven years, according to Experian. If you made all of the payments on time it should have a positive effect on your score, otherwise you’ll have to wait for it to be removed by the credit reporting agencies.

It is Possible to Improve a Bad Credit Score

If you have a bad credit score and want to apply for an auto or other type of loan there are steps you can take to eventually avoid high interest rates. It starts with monitoring your credit report, and becoming financially responsible.

While you can’t “fix” your credit score, only correct errors, maintaining a consistent history of timely payments will help get it above the subprime rate.

This way the next time you are shopping for a “big ticket” item like a vehicle you aren’t stuck with a high interest bad credit auto loan. If your score has improved enough you might not even need a large down payment.