FICO Auto Score: What is it? How to build it.

Credit score and credit rating are a very important part of the financial society today. It may not be very forgiving, but whether we like it or not, a lot of organizations judge us based on our credit. A single number says whether we’re “credible” and how much of a liability we might be to a lender. Because credit scores are so important, everyone should know a little more about what a credit score is and how they can affect us financially.

To start off, as mentioned, a credit score is a number. This number typically ranges between 300-850. The higher the number, the better your credit. Lenders look at this number to determine whether lending money to someone is a risk and how likely they will pay back the money loaned. There are multiple factors that go into a credit score, primarily debt owed and efficiency of paying bills.

So what do you do if you have bad credit? What if you have none? There are ways to get or improve your credit score.

Building Credit

There are many ways to build credit, some ways are a lot easier than others. If you’re in a not-so-great credit situation, you may find some help below.

1. Get a secured credit card. If you don’t have credit, this is possibly the best way to build credit. A secured credit card is basically a debit card. The card holder agrees on a limit, say $500, and puts the money down which will be debited as the card is used. As they use the card, they’re using their own money, they’re not borrowing from anyone. The key is to replenish that $500 every month.
2. Get an unsecured credit card with a low limit. An unsecured credit card is the opposite of a secured credit card, meaning the card holder is borrowing money from an organization or bank and has to pay them back at the end of the month. They don’t need to pay it all at once, but that’s why it’s best to start with a low limit and live within one’s means.

For either type of credit card, use it on small things like gasoline or cheap meals. That way you know you can pay it off by the end of the month.

1. Pay bills on time. Not just credit card bills, every bill. If you rent an apartment or home, pay the rent in full on-time, always.
2. Keep a steady income and have your finances in check. Whether or not someone is employed, although not the prime factor, will definitely affect one’s chances when applying for a loan. Furthermore, don’t have too many accounts open. Creditors will look at how many accounts you have, and too many maxed out lines of credit can hurt your likeliness of getting a loan. And, too many open lines of credit with no balances is not good either. Lenders are looking at the liability and if you have several credit cards with $1,000 limit, the concern would be that you could end up with a combined debt of $3,000 on top of whatever the lender is considering to loan to you.
3. Check your credit regularly. Every American has a right to a free credit report at least once a year. Unions like TransUnion, Equifax, and Experian can provide one.
4. If you have secured credit card, move on to an unsecured credit card after a year, and keep on top of payments. This will show an evolution of credit responsibility.

FICO Score and Auto Loans

Most know about credit scores through the Fair Isaac Corporation (FICO). Many lenders use FICO when checking one’s credit because it is the most up-to-date and efficient organization to calculate credit. They’ve not only found a way to calculate credit, but they have split it up into various types, mainly for industry use.

So if applying for a car loan, then the lender will bring up the applicant’s FICO Auto Score. At the moment, FICO Score 8 is the most widely used, so an auto credit score would be “FICO Score 8” or “FICO Auto Score 8.” Unlike the usually 300-850, a FICO Auto Score has a range of 250-900, and unlike the regular FICO Score, auto scores are not available for the public. Meaning it’s up to you to know whether you’re in good standing.

Do you have an auto loan or have you ever? If so, have you made the payments on-time? Was your loan sent to a collections agency? Did you default on your auto loan? These can all affect one’s ability to borrow money for a car.

Remember the tip to have a steady income? That will definitely help one’s chances if applying for a loan, but if they have a low score, their chances are also low regardless of income. At best, they will be required to put a large down-payment on the car, and possibly a higher interest rate, to ensure the majority of the car will be paid for if the applicant fails to pay.

As you can see, credit is important when it comes to your financial history. If your ability to receive a car loan is based on a single number, think of what else can be affected. Your ability to rent a room, getting a loan for an emergency, even getting a credit card to rebuild credit can be a hassle with low credit. Take time, follow one or more of the methods listed above, and be responsible.

Photo source: shutterstock.com/Copyright: danielfela

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