5 Factors that Influence Your Bad Credit Car Loan
Establishing a healthy credit report can be easier said than done, and many potential borrowers will learn that it’s much easier to hurt your score than improve it. There are a variety of ways that you can compromise your credit report, and with a low score, you may have difficulty securing a line of credit for a significant purchase (like a new car).
It’s important to avoid these pitfalls and traps if you intend on keeping a positive credit score. While it may not seem very significant to you, you’re going to eventually rely on these creditors and lenders. While there are several places to secure bad credit car loans in Lexington, Kentucky (or anywhere for that matter), you’ll still don’t want to make your credit any worse. Continue reading to learn of several factors that can influence a bad credit car loan…
Missing a Payment
Well, this is quite obvious, isn’t it? It’s your obligation to pay these lenders in a timely manner, and if you don’t make these consistent monthly payments, your report is going to be impacted negatively. When future lenders are eying your credit history, they might be unwilling to lend to those with late payments.
Of course, one late payment won’t kill your credit. However, the frequency of these late payments can certainly make an impact. Those who miss consistent late payments are will be “penalized more severely,” writes Credit.com. Additionally, the more recent these late payments, the more likely it’s going to impact your report. As creditors are looking to predict your future ability to pay your bills, they’re obviously going to be eying your most recent payments (or lack thereof).
Finally, the impact and severity of those late payments also play a significant role. The longer these missed payments stay delinquent, the worse they’ll look on your report. It’ll be clear to a creditor if you made a simple mistake and missed a payment by a day. However, if you let that missed payment linger for more than a month, that’s an indication that you might be a credit risk.
Overusing Credit Card Limit
These credits or loans are meant for borrowing, which means you shouldn’t be using this money to excess. Of course, some people still run up their cards, keeping their accounts at the maximum limit. This is taken into account when determining a credit score, so you’ll want to make sure that you haven’t maxed out any of your cards.
If you have spent to the limit, you’ll want to pay off these accounts as soon as possible. Make your consistent payments over the following months, and you should see positive results on your credit report. While there isn’t necessarily one number that you’re going to want to aim for, it’s better to spend less of your card’s value.
Closing an Account
It’s a general misconception that closing a credit account can actually improve your credit score. This is entirely incorrect, as closing an account can actually have a negative effect.
When a credit account has been closed, that means the timer has started. This account will eventually fall off your credit report, so if you were relying on this record to help improve your score, it might not be in your best interest to ditch this. As Credit.com explains, “positive credit information” could potentially stay on a credit report forever, but “closed accounts in good standing” are often removed within a decade. Once that information has been removed from the account, it plays no bearing in your overall score. Active accounts will remain on your report until they’re close, so if these scores prove to be advantageous, it’s worth keeping them around.
Plus, as the website notes, lenders often value those borrowers who have proven to hold accounts for several years or decades. These old accounts don’t play a negative role on your credit report (assuming the account makes a positive impact), so why kick them off?
Opening Too Many Accounts
Reversely, you don’t want to shop around for too many credit cards. After all, when you’re getting approved by a lender, they’re going to officially check your credit report. This is deemed a “hard inquiry,” which never looks particularly good on your credit report. These creditors can see whether you’re shopping around for lines of credit, and multiple applications may prove that you’re flaky and unreliable. Plus, it’s rooted in statistics, as Credit.com notes that customers with more hard inquires “tend to be higher credit risks.”
Settling a Past Due Account
When you and a dealer have established that you’re going to settle on a past-due account, you’re essentially coming to an agreement on a payment that is valued at less than the owed amount of money. In other words, a $10,000 delinquent payment may transform into only an $8,000 hole. This may be the only option for some, as that debt can prove to be too much to overcome.
While this may seem like the logical route, it’s not a good idea if you’re looking to improve your credit. These “settled accounts” don’t look particularly flattering on your credit report, as they prove that you previously were unable to pay back a bill. Furthermore, the deficiency balance (or the amount of money cut out of that original debt) will be reported to your credit bureau. If you’re negotiating with your lender about a settlement, see if they’re willing to remove the deficiency balance from the report. While you may have to pay an extra bit of money, it’s better to avoid that negative stain on your credit score.
Unfortunately, there are plenty of other ways a borrower can ruin their credit. On the flip side, there are also several easy ways to help improve that score. Ultimately, you’re going to have to be responsible with these lines of credit, and if you abuse the lenders trust, you’re going to have issues securing a loan down the road. Don’t compromise any future financial opportunities by being flaky with credit.