Four Reasons you have a Bad Credit Score when buying a Car
A lack of adequate finances doesn’t mean that you will not be able to buy your favorite car. Many lenders offer an auto loan to buy a vehicle. But they want you to have a good reputation. They are looking for car buyers with good credit. So, you must improve your credit score before applying for a car loan.
If you are worried about your credit score, it is best to check it beforehand. Knowing your situation will help you adjust your strategy and simplify the auto loan approval process. Also, knowing the reason behind your bad credit can help you to rectify your mistakes and improve your score.
Reason 1: Vehicle Repossession
If you buy a car with a secured auto loan, the vehicle is the security for the lender. There's an explicit agreement between you and the lender. You may use the car as long as you make timely payments. If you fail to honor the agreement, the lender can take your vehicle away.
Repossession of a car negatively impacts your credit score. Hence, it's a reason for bad credit scores. For example, if a finance company has repossessed your vehicle, you cannot apply for another car loan within the next 12 months because it will severely impact your credit score. No lender will approve the car loan in the first few months of repossession. And, you may have to take the help of your spouse/children/parents to commute from one place to another.
Reason 2: Bankruptcy
Filing for bankruptcy can negatively impact your credit score for ten to thirteen years. When you have filed for bankruptcy, you cannot shoulder the burden of additional responsibility, so the lender may not approve your loan application.
In Chapter 7 bankruptcy, you may get a discharge letter within six months, depending on the terms of the agreement. And then, you can apply for a car loan. However, in Chapter 13 bankruptcy, you will get a payment schedule for the next three to five years. To apply for a car loan in the case of Chapter 13 bankruptcy, you must seek the court's approval.
Reason 3: Late or Missed Payments
Regularly missing out on credit payments or paying off credit card debts after the due dates are over affects your credit score. Credit bureaus will reduce your score and categorize you as a bad credit borrower, whether you missed out on the payments because of death in the family, sickness, or employment.
When you make late payments or miss them several times, the lender may report it to the credit bureau. Often, the lender may consider you as bad debt. They may also repossess your vehicle. All these things can negatively impact your credit score and reduce the score phenomenally.
Reason 4: Identity Theft
Identity theft happens when a person is unaware that someone has assumed their identity, usually for financial gains. Often, a victim of identity theft becomes aware of the crime when a lender starts chasing them for repayment or they see a low credit score on their report. Being a victim of identity theft can lead to bad credit because identity thieves will often apply for loans on your behalf and not repay them.
The best way to save you from this is to inspect your credit report regularly and be aware of all the listed financial transactions. If you find any unwarranted transactions on the report, contact the respective credit bureau to get it sorted. Also, talk to your lender and explain your situation.
There can be multiple reasons for bad credit. If you are a bad credit car buyer, you can still apply for a car loan. Buying a car in cash is not the only available option for you.
There are a lot of bad credit lenders available in America; who help you get a car loan. To ensure a guaranteed auto loan approval, you must arrange a co-signer and a decent amount as a down payment. It can help you get a second chance at building your credit score.
:- Posted by Admin on 5th September, 2022