The Problem With Subprime Auto Loans
If you have a lower-than-average credit score, you might find yourself languishing in the subprime market. On the one hand, consumers with bad credit can still buy vehicles using subprime loans, but on the other, subprime loans are notoriously risky.
Subprime loansalso known as near prime, non-prime, subpar or second-chance loanscome with sky-high interest rates, voluminous fees and and often, longer payment terms.
Before you opt for a subprime loan, consider your options. Can you wait a while and improve your credit, for instance? Does the dealership offer in-house financing, and if so, do you qualify for that option? Subprime borrowers frequently find themselves under much greater financial pressure than prime borrowers, so dont sign on the dotted line unless you absolutely have to.
Credit Score Mortgage Rate: What Kind Of Rates Can You Get
With a credit score of 700, youll likely qualify for a mortgage and get a good interest rate potentially saving thousands of dollars over someone with a lower score.
Kim PorterUpdated April 28, 2021
Our goal is to give you the tools and confidence you need to improve your finances. Although we receive compensation from our partner lenders, whom we will always identify, all opinions are our own. Credible Operations, Inc. NMLS # 1681276, is referred to here as “Credible.”
While people with higher credit scores tend to get better terms on their mortgage, you dont have to aim for the highest score possible.
Every mortgage program has its own minimum credit score requirements, and with a 700 credit score, youre likely to qualify for a loan and snag a good interest rate.
Heres what you need to know about credit scores of 700 or higher:
Sesame Data: Achieving A 700 Credit Score
Lastly, lets look at some Sesame Data to see how long it really takes to get over that 700 score hurdle.
The chart below shows us that when we sampled Credit Sesame members who were trying to improve their credit, it took them roughly 125 days to go from Fair credit to Good credit. Remember, Good credit is generally a score that falls between 700 and 749.
| Recovery Credit Range |
|---|
| 10 | 740 |
Seeing how all the actions he took impacted his score can be a great way to understand how various actions could improve your own credit score.
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How To Earn A Fair Credit Score:
If you are trying to get your credit score into the “fair” range, pull your credit report and examine your history. If you see missed payments or defaulted loans or lines of credit, do your best to negotiate with the lender directly. You may be able to work out an agreement that allows you to make manageable, on-time payments. Getting back on track with these consistent payments could help improve your credit score over time. As you work through meeting your debt obligations, take care not to close any of your accounts. Open accounts with a long history could be positively contributing to your score and can continue to be used responsibly in the future.
Look at your credit report, create a budget that sets aside money to pay off your debts, and learn more about how credit scores are generated: these are the three fundamental steps in moving your credit score upwards.
Why Having A Good Credit Score Is Important
Your credit score is one of the most important factors lenders look at when determining your creditworthiness, but your credit score can affect you in ways beyond taking out loans. Here are some reasons why having a good credit score is important:
- It can affect whether you qualify for a loan. Whether youre applying for a home loan, auto loan, personal loan, or credit card, most lenders will look at your credit score to determine whether to approve you. The higher your credit score, the better your chances of getting approved.
- It can affect what interest rates and terms you get. Even if youre approved for a loan, you may not qualify for the lowest interest rates if you have a bad credit score. The more lenders feel youre a credit risk, the more theyre likely to charge you to lend to you. Having a bad credit score can also limit the loan amount or the length of the loan you qualify for.
- It can affect your insurance premiums. Although not the primary factor, your credit score can affect your insurance premiums. According to , people with excellent credit scores have 24% lower premiums than those with median scores.
- It can affect how employers see you. Even if your job has nothing to do with lending or finance, some employers may look at your credit score as part of a background check. Employers may see a good credit score as a sign of high personal responsibility and evaluate you accordingly.
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Where To Go From Here
Its important to pay down your balances and keep your credit utilization under 30%. Its also wise to have a mix of installment and revolving accounts.
Of course, you also want to make sure you are making your payments on time from here on out. Even one late payment can be very damaging to your credit.
Length of credit history also plays an important role in your credit score. You want to show potential creditors that you have a long, positive payment history.
Building excellent credit doesnt happen overnight, but you can definitely speed up the process by making the right moves.
Give Lexington Law a call for a free credit consultation at and get started repairing your credit today! The sooner you start, the sooner youll be on your way to having excellent credit.
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Keep An Eye On Your Score To Know Where You Stand
It can be hard to save up enough money to buy a car outright. Thankfully, auto loans arent hard to qualify foreven if you have less-than-perfect credit. The better your credit, the lower your interest rate might be.
Dont spring for a subprime or non prime loan unless you have no other choice. Instead, improve your score and snag a better interest rate. You can take the first step by signing up with ExtraCredit, which includes Track It. View 28 of your credit scoresincluding the ones auto lenders seeto know where you stand and what areas you need to work on.
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Tldr Should You Aim To Get To A Credit Score Of 700 And Higher
In conclusion, yes a credit score of 700 is a Good score. Whats more, having a Good credit score can help you get better interest rates, save on down payments, and overall have a better experience when applying for credit.
Now that you know a 700 credit score is Good, what steps will you take to achieve it?
What To Do Before Applying For A Credit Card If Your Fico Score Is 700 To 749
Even if youve been in the 700 to 749 credit score range for a long time, never assume thats still the case. Credit scores are a moving target! The score you have today will be different a month from now, and again a year from now.
For that reason, there are a few steps you should take before you even make application for a credit card.
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How To Earn A Good Credit Score:
If you currently have a credit score below the “good” rating, you may be labeled as a subprime borrower, which can significantly limit your ability to find attractive loans or lines of credit. If you want to get into the “good” range, start by requesting your credit report to see if there are any errors. Going over your report will reveal what’s hurting your score, and guide you on what you need to do to build it.
Your Fico Score: Just One Piece Of The Puzzle
Id like to conclude this post by offering a little perspective. You may want a perfect credit score, and if you do I suggest you go for it.
But theres more to your personal finance life than perfect credit. Different lenders consider criteria other than your credit history when you apply for a loan or a credit card.
Your debt-to-income ratio, for example, could disqualify you for some of the best credit cards and loan options. This ratio measures how well youre able to pay your current bills with the income youre bringing in.
Your employment history could matter to some lenders, too. Just like with the length of credit history, a longer employment history works in your favor.
If you work to create the most stable personal finance life possible, your FICO score will fall into place, and youll stay at the top of the credit score range.
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The Best Mortgages For Buying A House With Lowcredit
If you have a low credit score, or past red marks on your credit report, the first type of mortgage you should look at is an FHA loan.
FHA loans
FHA loans are mortgages insured bythe Federal Housing Administration. This insurance protects mortgage lenders,making it possible for them to lend to borrowers with lower credit scores andsmall down payments.
In fact, the FHA mortgage programwas specifically designed for credit-challenged home buyers. It allows thelowest credit score of any loan program 500 although you need a 10% downpayment if your score is below 580. Those with a score above 580 onlyneed to put 3.5% down.
Conventional/conforming loans
Conventional loans also allow amodest credit score of 620 with a down payment of just 3%.
However, the cost of privatemortgage insurance can make conventional loans unattractive forlower-credit borrowers with less than 20% down.
Conventional and FHA loans both require mortgage insurance. The difference is that FHA charges the same mortgage insurance premiums for all borrowers, regardless of credit.
Conventional mortgages, on the otherhand, have steeply increased PMI rates for borrowers with low credit and alow down payment. As a result, FHA financing can sometimes be cheaper forborrowers with credit in the low- to mid-600s.
VA loans
For veterans and active-duty service members, a VA mortgage is normally the best bet.
Have At Least One Gas Or Store Credit Card
For the longest time, I resisted getting a store card, such as a Macys credit card, because I saw no point in opening a new credit account just for one store.
But, now I know better. If you shop at one store a lot, and that store offers its own credit card, consider applying. These cards have some nice perks such as cash back or coupons.
More importantly, a store credit card can boost your credit. I cant document this, but I know getting a Macys card and keeping its balance at $0 each billing cycle boosted my FICO score by 20 points.
Just be sure you dont buy too much and run up a balance you cant clear each month. If you do that, youll be cutting into your available credit which will hurt your credit score.
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How To Improve Your 706 Credit Score
A FICO® Score of 706 provides access to a broad array of loans and credit card products, but increasing your score can increase your odds of approval for an even greater number, at more affordable lending terms.
Additionally, because a 706 FICO® Score is on the lower end of the Good range, you’ll probably want to manage your score carefully to prevent dropping into the more restrictive Fair credit score range .
46% of consumers have FICO® Scores lower than 706.
The best way to determine how to improve your credit score is to check your FICO® Score. Along with your score, you’ll receive information about ways you can boost your score, based on specific information in your credit file. You’ll find some good general score-improvement tips here.
How To Get A 706 Credit Score
While theres no sure-fire way to achieve an exact credit score, theres plenty you can do to build and maintain your credit within a range. Most importantly, youll want to practice healthy credit habits.
Even with so many different credit scores out there thanks to different scoring models and different credit bureau data some general principles apply. Most credit scores take into account at least five main credit factors.
Heres a breakdown of each factor and how it can affect your overall credit.
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Other Uses For A Credit Score
But there are situations apart from borrowing, where credit scores are important. Employment is one.
Prospective employers routinely pull credit reports on their new hires, often to determine if theyll hire them at all.
Insurance companies will run credit checks on new customers, and the resulting score can have an effect on the premiums theyll pay.
Nowadays, just searching for an apartment to rent can result in your credit being checked.
Running a credit report before approving your lease application has become standard procedure for many landlords and property management firms.
You get the picture. Sooner or later, when you need that new loan, mortgage, or new apartment, the strength of your credit will become very important.
Tips To Get A Perfect Credit Score
The first thing to keep in mind is that obtaining a perfect credit score takes time.
Its rather easy to remove negative items from your credit report and get a better score, but a perfect score is another story.
Now, assuming you dont have any negative items on your credit report like late payments or a collections account, lets get into the more advanced credit behavior youll need to learn and put into practice.
Keep in mind that all of the steps outlined below are based on my personal experience, not random advice Ive read on the internet.
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What Are The Benefits Of A Good Credit Score
Making timely repayments of loans and credit card bills can fetch you a good credit score. This has numerous benefits. Here, we have listed some of the major benefits of a good credit score:
1. Low-Interest Rates on All Types of Loans
This is a major benefit when it comes to having a good credit score. Everyone aims to maintain good credit so that loans can be availed at low-interest rates. This can further help in paying off loans faster and reduces a significant amount of financial burden. Even a slight reduction in big-ticket loans such as home loan, loan against property, etc., can save you a lot of money in the long run.
2. Improved Approval Chances for Loans and Credit Card
Every lender first goes through your credit score and reports as soon as you apply for a loan or credit card. This is called a hard enquiry and it can also impact your credit score. The impact can hurt your credit score in case the application gets rejected. However, with a good credit score, the credit approval chances are higher since lenders will not have a strong reason to reject your application.
3. Higher Credit Limits
4. More Negotiating Power
What Is A Good Credit Score To Buy A Car
You might think that getting an auto loan is almost impossible, but thats actually not the case! Most people find auto loan optionseven if they have truly dismal credit scores. Having said that, the better your credit score, the lower your auto loan interest rate will be and the less youll repay overall.
Intrigued? Lets take a look at VantageScores credit scoring model:
- Super prime: 781-850
- Subprime: 500-600
- Deep subprime: 300-499
The average amount people borrow doesnt change too much between the subprime and the super prime tiers. Borrowers tend to choose less expensive vehicles in the deep subprime market, however.
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How Your Credit Scores Are Set
Canadian credit scores are officially calculated by two major credit bureaus: Equifax and TransUnion.
They use the information in your credit file to calculate your scores. Factors that are used to calculate your scores include your payment history, how much debt you have and how long youve been using credit.
Pro Tip: You can view sample credit scores summaries from each bureau to get a sense of what to expect.
Credit Score Is It Good Or Bad How To Improve Your 706 Fico Score
Before you can do anything to increase your 706 credit score, you need to identify what part of it needs to be improved, plain and simple. And in order to identify what needs to be improved, you should probably be aware of all the things that count and dont count towards your score.
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The Right Credit Score
You may have visited this article thinking you have a FICO score somewhere in the 680-689 range.
The truth is, depending on where you checked your score, you may not be using the same score the auto lenders use.
In the U.S. today most people receive a free credit score with their credit card services or other financial institution supported websites such as Chase Credit Journey.
The problem with these credit scores is that they are usually a FAKO score, not a FICO score.
FAKO scores, such as Vantage, intended use is for educational purposes and not to be relied upon for financial decisions.
The largest producer of FAKO scores is the VantageScore 3.0 .
Whats the difference?
Well, both FICO and Vantage pull your credit history from the big three credit agencies Experian, Equifax, and TransUnion, to calculate your credit scores.
However, the credit scores that FICO generates from your account history at the three credit bureaus are used to assess the risk of a borrower by 90% of lenders in the U.S.
The VantageScore 3.0 is given away free on websites like Credit Karma and in 2018 was prohibited from being used by Fannie Mae and Freddie Mack for real estate mortgages.
Consequently, as you can imagine, the Vantage credit score can be volatile and inaccurate.
For example, according to CreditCards.com, the average VantageScore in Riverside, CA is 702, whereas the median FICO score in CA is 712 to 722, making the first number hard to believe.