Income DOES matter, but it’s not the most important thing. While certainly helpful, a large income is not the only thing that companies dealing in bad credit car loans consider. When determining a borrower’s eligibility for subprime auto financing, banks and finance companies look at several factors.

Among the most important factors is debt. As we often tell our local KY and Southern Indiana customers, analyzing a borrower’s current debt load helps auto loan companies specializing in weaker credit understand how much disposable income a person has available for a potential car loan.

This is often referred to as the debt-to-income ratio or DTI. Some companies consider only debts that appear on a borrower’s credit report, while others may include non-reported items such as utility bills, cell phones, and rent.

The type of auto financing available (interest rates, loan term, loan size, etc.) and the factors considered when determining bad credit car loans is often dependent on the individual bank or automobile lender’s underwriting guidelines.

Fortunately, our Louisville-based Mazda dealership has many strong connections to both local lenders and nationwide banking institutions.

While it may seem like a good idea to close credit accounts that you rarely use, it can actually harm your credit scores. When calculating credit scores, credit reporting agencies such as Experian, Trans Union, and Equifax look at the length of time an account has been open.

Much like KY auto dealerships that specialize in bad credit car loans, credit score companies base their decisions on past payment history. Long histories show stability and allow companies to more accurately predict your behavior and its severity.

For example, making two late payments on an account open for ten years is not nearly as concerning as making two late payments on an account open for four months. Simply put: the longer a credit account is open, the better.

When pulling a credit report, credit agencies distinguish personal requests from business requests. Personal requests, often call a “soft pull”, do not affect your scores at all. You can pull your own credit an unlimited number of times without it ever affecting your score.

Did you know that everyone is permitted to pull their own credit once per year from each of the “big three” credit agencies (Experian, Trans Union, and Equifax)? It’s true! You can pull your own credit an unlimited number of times without it ever affecting your credit score. If a local Louisville bank or a national lending company specializing in bad credit car loans, pulls your credit report, it is known a “hard pull.”

While repeated pulls by lending institutions can lower your score slightly, credit agencies such as Experian, Trans Union and Equifax understand that lenders must view credit in order to make decisions. As such, the overall effect on your credit score is typically very minor. Should you have specific questions about this, feel free to speak with one of our credit consultants at our dealership on Shelbyville Road in St. Matthews, KY.

Contrary to what many people believe, vehicle financing is among the BEST ways to repair one’s credit! Why? Because car loans, even those for people with bad credit, have many of the attributes credit agencies use to judge a person’s credit worthiness.

One of the most important things a credit agency analyzes when judging credit scores is debt type. If you were to obtain auto financing, even with bad credit, the loan would be classified by credit reporting agencies as an “installment loan.”

Unlike credit cards, which are known as “revolving debts”, installment loans have a fixed term and rates of interest that do not change. Where credit card interest rates and terms can sometimes change, installment loans like car loans, even those for people with less than perfect credit – will eventually end after a fixed period of time.

How you pay an installment loan helps credit reporting companies understand your payment habits: Do you pay on time every month? If so, do you pay the full amount? Even Louisville, KY-based companies who specialize in bad credit car loans, like Oxmoor Mazda, want to know the type of borrower with which they are dealing.

Another important factor to remember when thinking about applying for bad credit auto financing is loan size. Next to a home loan, auto financing is often the largest and most important debt in a person’s life. Due to the weight auto loans command, especially if you have bad credit, it is extremely important to use good judgement and exercise responsible behavior in order to achieve a healthier credit score.

For people with low credit scores seeking auto financing, bankruptcies and vehicle repossessions are not uncommon. The financial experts at Louisville, KY‘s Oxmoor Mazda recognize that, at some point, a person’s bills become too much to handle. As a result, it becomes necessary to make hard choices about which debts to prioritize. In some cases, these hard choices may have resulted in a Chapter 7 or Chapter 13 bankruptcy or even a vehicle repo.

The good news for borrowers with poor credit is that BK7, BK13, and repossessions do not necessarily disqualify you from obtaining auto financing.Realistically, when you go through a bankruptcy, you are reducing your debt load. In some cases, this actually makes your application more attractive to lenders because you will have more disposable income.

More income and less debt means you are now better equipped to afford an auto loan – an important factor to many local Louisville lenders and national finance companies, especially if your credit is less than perfect.

That said, you may need to reassure a lender who specializes in bad credit car loans that your past credit issues are over and you are committed to making an investment in your future. This is best accomplished by having a substantial down payment, realistic ownership goals, and/or a strong co-signer.