How your credit effects your car loan

Good credit today is an essential part of every day life. We buy so many things on credit from homes to cars, furniture to groceries, gas, clothes, and anything you can think of. That is why your credit is important to you. Information on your credit report can stay on there for up to ten years. Unfortunately, not all of us have the best credit. There are over 2,000 credit bureaus in the United States that are the gatekeepers of you credit. The three major credit bureaus are Experian, Equifax, and TransUnion. They score your credit according to their formulas to develop what is known as Fico Scores. Fico scores usually range from 400 to 850; 400 being lowest score and 850 being the highest score. These credit ratings or Fico scores estimates the ability and willingness to repay a debt or loan.

Can you simply repair bad or no credit? Unfortunately, you cannot. This will take time and patience to repair your bad credit.

This is because they do not have any Fico scores. The good news is that you do not have bad credit. You are already ahead of the game if you have no credit. You just have to develop your credit carefully.

If you have bad credit, this may take more time and effort to repair. The first step in repairing your credit is to get a credit report on yourself. Once you obtain your credit report make sure the information on the report is in fact correct, such as your date of birth, your last known living address, the list of all your creditors, and of course your full name.

This chart shows an example of how interest rates for a car loan can vary based on your credit score:

There are other factors that influence the interest rate you get for a loan besides your credit score. Things like the type of property you are using the loan to buy, how much of your own money (equity) is going into it, the costs the lender has to make the loan, etc.

Now let’s take a step further and imagine you're getting a Nissan Maxima, for $24,000. The Maxima would cost three hypothetical individuals:

• $24,000 for someone who pays for it in full.
• $26,725.24 for someone with excellent credit, perhaps qualifying for the full loan with a 3 year term at a rate of 7.12%.
• $29,111.57 for someone with mediocre credit, taking out the full loan for 3 years at a rate of 13%.
• $32,109.33 for someone with poor credit for the full 3 year loan at a rate of 20%.

That’s an incredible difference that ranges from almost $3,000 to $8,000 in 3 short years!