Almost everyone needs a car in our daily lives whether to take you to work or to drive your kids to school. In most cities, it is essential to getting from point A to point B. If you don’t have one yet, you might be wondering whether it’s better to lease or buy one outright.
However, before making any large purchases like a vehicle, it’s helpful to know your credit score so you can find out what kind of loan you can get approved for and what kind of interest rate you will be dealing with.
In this article, we look at the credit scores you need to lease or purchase a vehicle so you can better plan to get your dream car.
What Credit Score You Need To Lease A Car
Stated by a credit repair Dallas expert, the advantages of leasing a car versus buying one outright are that you generally get lower monthly payments. Some experts say you can get anywhere from 30% to 60% lower payments versus buying a car. Another big advantage is that you have warranty protection for the entire time you drive the car.
Leasing a vehicle is like buying because you still need a decent credit score. According toNerdwallet, “the average score for customers staring a new lease was 722. If your score is 680 or above, you’ll likely have attractive offers.”
Credit scores above 740 are considered excellent by lenders, and those with scores 740 and over get the best rates and deals regardless of whether they purchase or lease.
But, what if your score isn’t so hot?
Well, according toLeaseGuide.com, if you have a score between 620-679, you’re still in the ballpark for getting a lease. However, while you’re more than likely to be approved with those numbers, you may get a higher interest rate.
Now, if your score is below 619, it’s considered ‘sub-prime’ or fair credit. If you have a score in this range, you may or may not get accepted to lease. And if you do, you’ll likely pay a high-interest rate.
If you have a sub-prime score, you’re better off taking a few months to improve that number before you go shopping for a new vehicle, if you can. Keep in mind that lease requirements always change and vary among auto manufacturers. It’s important to note that market conditions play a factor in whether or not you get approved depending on your score.
Credit Score For Buying A Car
Buying a car has its own advantages over leasing. While you do pay higher monthly payments, you have the benefit of owning a vehicle when you’ve paid it off, and can sell the vehicle when you choose to get another one.
Also, you have the advantage of being able to modify the vehicle if you want without the fear of breaking a contract.
But buying a car is similar to leasing because you still need to have a decent credit score to get a loan. Again, according to Nerdwallet.com, “the average credit score to buy a new car is 713; it’s 656 for a used-car loan.”
If your score is in the low 700s or below, expect to have a difficult time getting a loan. You’ll probably have to answer questions about negative entries in your credit report and have to jump through hoops to prove your income and verify payment history.
While it’s possible to get an auto loan with bad credit, which is defined as a score below 600, it’s unlikely. And if you do get approved, you’ll pay very high-interest rates.
As with leasing, if your credit score is bad, you’re better off spending six months to a year rebuilding your credit score back up if you can afford to wait.
How To Improve Your Credit Score
As you can see, having a good credit score is essential to getting good terms on a lease or car purchase. But if you have less than perfect credit, all hope isn’t lost. There are steps you can take to beef up your score and it doesn’t take as long as you may think.
To know what your credit score means, it’s helpful to know how that number is calculated. Credit scores are three-digit numbers that help lenders know how credit-worthy you are. There’s no uniform algorithm that’s used by everyone, which is why you may have different scores from different reporting agencies.
Credit reporting agencies look at a variety of factors to come up with that number, including your payment history, your credit usage, whether your accounts are delinquent, etc.
First and foremost:
The number one thing you can do to improve your score right away is to make your payments on time from now on. Your payment history is the biggest factor that goes into your credit score.
Even if you’ve been late before, start making every payment on time even if it’s the minimum.
The next thing you can do to improve your credit score is to pay off your debts and credit cards. The debt to credit ratio or credit utilization ratio is the second biggest factor that goes into your credit score. Do everything you can to bring down those credit card and loan balances quickly to send your score in the right direction.
Another way to better your score is to not take on any more debt if you can afford it. It seems counterintuitive since you’re trying to take on a car loan, but when you apply for new credit, your score takes a hit. That’s why it’s best to get your score as high as you can before taking on a car loan or lease payment.
The bottom line to take away from this article is that your credit score is very important whether you want to get an auto loan, home loan, or any other type of credit. If you’re in the market for a new vehicle, your best bet is to examine your credit to see where you stand.
Then, if you think you need to make improvements, do so first before you attempt to get a loan. Getting a loan with a high credit score gives you more favorable terms and makes it more likely you’ll be approved.
Your credit score determines a lot of things in life. A poor credit score can keep you from securing an auto loan, being eligible for an apartment lease. It can also determine the interest rate on any credit card that you apply for. That is why having a good credit score is so important, but how can you get a good credit score if you currently have a bad one?
Credit issues are sometimes complicated, and improving one’s credit score can be a very time-consuming endeavor, which is why many people opt to hire professionals to assist in improving their credit scores. These professionals are employees of credit repair companies.
A credit repair company is a business entity that offers to improve the client’s credit in exchange for payment. You can hire these active companies to raise your credit score. Once you hire one, they typically go about improving your score by first requesting your credit report from each of the three major credit bureaus.
They look for derogatory marks such as charge-offs, bankruptcies, and tax liens. They also look for possible errors in your report that could be negatively affecting your score. Then they usually petition for these marks to be dropped off your record or negotiate with the creditors to make your report more favorable.
Once they have done everything they could on their end to amend your credit report, a good credit repair company will then work with you directly to devise a financial plan that will keep you on the right path towards better credit. There are a lot of essential questions that get asked of these companies during this process, which include:
How Long Will it Take to See an Improvement in my Credit?
The length of time will vary greatly depending on the situation, but there are usually simple steps that can be taken that make an immediate improvement. A credit repair company can request certain frivolous marks against your credit be removed, and creditors will usually comply with these requests. So a good credit repair company can make a slight improvement in as little as a month.
If a request for an investigation is made on the client’s behalf, the reporting bureau has 30 days to complete the investigation to determine if any mark should be stricken or sustained. Of course, the bureau has the right to review and deny any request for an inquiry if they deem it to be dubious.
Sometimes though it is not as simple as sending out a letter and improving a client’s credit can take up to a year. This usually happens when litigation must be involved to dispute fraudulent reports from crediting entities.
Do you Offer A Money Back Guarantee?
What if a client’s credit cannot be improved? There are certainly cases that can’t be helped so what if you hire a credit repair company and they can do nothing for you? These situations are why so many companies hear questions about a money-back guarantee.
The truth of the matter is that most reputable credit repair companies will not ask for money upfront. The credit repair industry is rife with scams, and one of the most telling signs that you are dealing with an illegitimate organization is if they ask for money before any services are rendered.
On the flip side, almost all respectable credit repair companies will not charge you if they could not improve your credit score and they will never guarantee results. They will usually offer a free initial consultation wherein they will assess your situation and how they might be able to help. Or not.
What Kind of Information will I need to Provide?
The reason people opt to work with credit repair agencies is there is usually a lot of confusing red tape, and the process takes a lot of time. So one concern that is often expressed relates to how much of the client’s time will need to be committed to the process and what kind of information or documents they will need to produce.
Most companies will request things like a list of current debts, payment histories for existing obligations, and if possible, the client’s credit utilization rate. This will involve gathering some documents and also giving the company access to any credit monitoring software that the client uses.
Hiring a credit repair company will usually mean a correspondence will open up between the company and creditors and the credit bureaus. All correspondence letters are sent to the client’s address, and they will need to either physically give copies of these letters to the company or send them digital copies.
There is no improving your credit without being directly involved in the process and carving out at least a little time to work with whatever company you hire so you should avoid any company that says they will take care of everything for you as they are probably trying to scam you.
The good news: We live in an age where you can pretty much do anything with the assistance of software.
The bad news: Software has only come so far in replacing the services of professionals.
You can purchase software for everything from filing your taxes to improving your credit score, but when it comes to the latter, it is best to entrust your precious credit standing to professionals. The main reason is that credit repair software will require you to do 99% of the work and unless you are a credit wiz, this kind of software will not benefit you much.
Here are the reasons why hiring a credit repair company is advisable overusing credit repair software.
Hiring A Professional Saves Time
Unless you know somehow that improving your credit will be as simple as sending a request for investigation to one of the three credit bureaus then repairing your loan can be a very time-consuming ordeal. In some cases, lawyers will even need to be involved in your case involves taking a creditor to task for false reporting.
When you hire a professional, you will need to be involved. For example, most companies have a consultation and what’s known as an intake session where they gather as much pertinent documentation from the client as they can. Apart from attending these sessions and finding and submitting these documents, though, you will not need to commit very much more time in this endeavor.
Most credit repair companies work every month in the background. All the client usually has to do is forward correspondences they receive from creditors or bureaus.
With software, the individual will need to pore through their own documents so that they can input critical information into the system, which is essentially a glorified spreadsheet. They will also need to read through all correspondence letters and reply to them directly – all very time-consuming activities.
Software Cannot Fight For You
First of all, no software no matter how advanced can interact with the credit bureaus or credit issuing entities so forget about disputing frivolous reports or getting things like liens and charge offs stricken form your credit report.
There are certain legal time limits that the bureaus have to process requests for investigation and disputes. A professional credit repair company will stay on top of these deadlines and keep track of the process as it develops.
They will make sure that the bureaus are doing what they need to do for your best interest and fight against the irritating bureaucracy on your behalf.
At best, credit repair software can update you as to the process of disputes, but you will be responsible for filing the conflicts in the first place and deciding what to make of these process reports.
A Sounder Investment
There is never any guarantee that you or anyone you hire will be able to improve your credit score, but at least when you hire a professional, there will be some sort of money-back guarantee if they can’t do anything for you.
When you “invest” in the credit repair software, there is no money-back guarantee. If you cannot improve your own credit score by using the software you are on the hook for however much you paid for it and for however long you subscribed to the service.
The higher-end credit software suites can cost up to $400 too. Most people’s credit can be improved by at least a little within 2 months, which sounds favorable when you consider that most professional credit services charge $30 to $100 a month.
A More Comprehensive Approach
At least at the time of this writing, the personal approach cannot be quantified. When you hire a credit repair company, you will have the option of working with a human professional to devise a financial plan that you can follow to better credit.
This includes an in-depth analysis of your current debts, finances, your financial goals, and in some cases, one-on-one financial coaching services.
No software can provide this thorough analysis and come up with a financial plan specifically suited to your situation. In fact, most credit repair software simply offers dispute letter templates that you can fill out and send to creditors.
If you opt for the more expensive software packages, you might be given access to a real live credit expert who can walk you through the process, but at that point, you will be spending as much as you would if you hired an expert only without all the additional services.
They Put the Law on Your Side
Fixing credit is not always just a matter of getting negative marks off your record. Sometimes collection agencies have lawyers, and they will not yield to the average citizen that their actions are unlawful or that their grounds for collection are false.
Software does not know the law, and they cannot talk to these collection agency lawyers to show them that a mistake has been made or that their actions are illegal. But a high-caliber credit repair professional will know the law and put it to work for you.
There are also specific laws that have been enacted such as the Fair Credit Billing Act, the Fair Credit Reporting Act, and the Fair Debt Collections Practices Act to protect consumers and can be leveraged for the benefit of your credit.
There are only specific ways a collection agency can go about trying to collect a debt under the FDCPA, and when they violate this act, a professional can leverage the violation as a way to dissolve the deficit for the client.
Simply put, no software can do this for you. In the end, hiring credit repair professionals can save you time, money, and make sure that you have a sustainable way to good credit in the future.
Stated by The Phenix Group, one of the main reasons that people are reluctant to file for bankruptcy even when they are drowning in debt is that bankruptcy negatively impacts one’s credit score. Depending on the type of bankruptcy on file, the filer can expect a total score drop of 160 to 220 points.
Even if you had good credit to start with, this is a significant drop and one that will probably discourage all creditors from issuing loans or giving out credit cards.
Still, the reason that many people ultimately do file is that they simply have no way out of their situations and they come to realize that letting debts age and pile up is ultimately harsher on your credit score than waving the white flag and admitting that they have no solvency.
Why Bankruptcy May Be Better Than Waiting It Out
Hopefully, you are not on the brink of bankruptcy, but you may be wondering what benefit there would be to filing bankruptcy as opposed to just letting your debts go unchecked. First of all, it is essential to know precisely what filing for bankruptcy does. Depending on the kind of bankruptcy you are filing, doing so effectively lets you off the hook legally for any outstanding debt that you have.
This means that creditors no longer have the option of taking you to court to collect on delinquent debts. That may sound enticing but keep in mind that bankruptcy can murder your credit score.
So is bankruptcy better than just waiting it out? That depends. Most states impose a statute of limitations on debt, which means that a creditor only has a certain amount of time to sue a person for failing to pay a debt.
In some states, the statute of limitations expires after 4 years so whether or not it would be better to roll the dice and pray that you can be delinquent long enough without your creditor suing will depend on the state you live in.
It will also depend on your age, marital status, and income. A creditor will be less inclined to act before the statute of limitations expires and actually sue you if you are a senior citizen living on a fixed income. But let’s say you are in your 30’s, have a job and don’t have a spouse and have not started a family. Then you are a juicy target for litigation because not only will you have the time to pay off your debt as mandated by a judge, but you have a job and source of reliable income.
In this case, it would probably be preferable to file for bankruptcy than taking a huge risk that a creditor won’t sue you while they have the opportunity.
Differing Kinds of Bankruptcy
By far, the two most common types of bankruptcies filed in the US are chapter 7 and chapter 13. To put it in simple terms the main difference between these two is that chapter 7 is a relinquishing of all debts legally and chapter 13 is more like a legal payment plan that is decided in the courts.
7 will automatically relieve you of debt and 13 will adjust the way that you must pay your debt. But, as always, there are caveats.
A Breakdown of Chapter 7 Bankruptcy
To be eligible to file for chapter 7 bankruptcy, you must prove beyond the shadow of a doubt that you do not have the income to pay off your debts feasibly. Chapter 7 gets you off the hook legally for having to pay back your debts, but it can be excruciating and not just because it lowers your credit scores. The court will decide which of your assets are nonexempt, and any nonexempt assets or properties will be appropriated and sold to help pay off your debts.
You can keep any property or asset that the court deems exempt.
So it is conceivable that a court will deem a debtors home as nonexempt property if for example there is high equity on the home. In this case, the debtor’s home will be taken and sold. Any remaining debt that cannot be paid off by liquidating nonexempt assets will be transferred from the filer of chapter 7 and committed to a court-appointed trustee.
A Breakdown of Chapter 13 Bankruptcy
Chapter 13 bankruptcy allows the debtor to settle on a payment plan with their creditors. Unlike chapter 7, chapter 13 does not get the debtor off the hook for paying back debts. Instead, it allows the debtor to work out a payment plan over 3 or 5 years, depending on the situation. The payments then go to a trustee who doles it out to creditors, and the debtor has no more direct contact with entities they owe money to.
Chapter 13 will also halt foreclosure proceedings, which allows the debtor to keep their home and nonexempt assets.
How Long Do Chapter 7 and Chapter 13 Stay on Your Credit Report?
Another critical distinction between chapter 7 and chapter 13 is how long they affect your credit score. The law stipulates that any bankruptcy will not stay on the debtor’s record for more than ten years. In the case of chapter 13, however, the motion will only be on your credit report for 7 years.
Chapter 7’s usually stay on your record for 10 years since the situation is often direr and the individual is basically saying they have no way of paying back the debts.
You don’t have to do anything to get these marks off your record as they are required by law to be dropped off after 7 or ten years. There are also ways that you can start to rebuild your credit in the 7 or 10-year span that the filing stays on your record. While bankruptcy is a very serious situation and can ravage your credit, all hope is not lost. With time and responsibility, you can come out of it better and more successful.
Have you ever heard of the expression, “No credit is worse than bad credit?” Like most people, you’ve probably thought the complete opposite. After all, isn’t it better to have no credit at all than to walk around flaunting a lousy credit score? However, this rationale is just not true.
Yes, it’s true that possessing poor credit can severely damage your financial standing, but if you are ever seeking a loan to purchase a car or new home, lenders will want you to demonstrate that you have a solid credit history.
If you’re wondering how you begin to build your credit and what measures you need to take to get there, you’ve come to the right place. Many people avoid building a credit history altogether, worried about falling into the pitfalls of being brandished with a bad credit score.
The good news is, there’s plenty of positive actions you can take to move your credit standing in the right direction.
Examine How You Got Here
For starters, it’s best to gain a strong understanding of why you don’t possess a credit score to begin. For instance, maybe you just graduated high school or college and haven’t had the opportunity to engage in credit-related activities. This can be attributed to the fact that you have yet to accumulate any student loan debt. Or perhaps, you never needed to apply for your own credit card.
Similarly, you may have just relocated to the States and therefore, have to build everything up from scratch. Whatever the case may be, not having any credit can work against you as you navigate through your life and career. It’s time to start working on eradicating this.
So, what should you do to build up your credit?
Get a Credit Card
The most comfortable place to start is to obtain a secured credit card. A credit card may seem like a frightening item to possess because of all the stories floating around about people submerged in credit card debt, which can quickly cause your credit score to plummet. However, owning a credit card means exercising financial responsibility.
The critical thing to remember is if you’re going to make non-essential purchases, like grabbing yourself a shiny new flat-screen TV, and you don’t actually have the means to pay for it, then you are putting yourself at risk for falling into credit card debt. Instead, you want to leverage your credit card for things you usually budget for, like groceries or gas, to ensure you never miss a payment.
Unsure of what type of credit card to get? First, you’ll want to look for a credit card that doesn’t carry any annual fees, as this additional expense could be more than you can afford. Another thing to consider is applying for a credit card at a store you typically frequent, like TJ Maxx. A majority of major retailers offer credit cards, and it’s a great place to start if you know you purchase goods from one particular place consistently.
Using credit cards for gas is also a smart investment. Say every time you go to the gas station, you usually hand the cashier a twenty-dollar bill. If you use a credit card instead and immediately pay off the money you used for fuel, it’ll help you begin building your credit and help boost your score in a positive direction.
It’s imperative to keep in mind that if you’ve given yourself a $500 spending limit, that you adhere to that maximum. Otherwise, you will find yourself overspending and unable to pay owed funds, which will quickly get you into trouble.
If you are just now starting, it may be a good idea to enlist the help of your parents. If they possess good credit, they will be able to co-sign for you. Having this work alongside your own application will help as well.
Another highly recommend tip to boost your credit is to lease a car. Now, you may have heard that owning a car is the way to go. Alternatively, you may have certain preconceived notions about leasing, but if you lease a car, it opens up a line of credit and allows you to demonstrate your ability to make monthly payments on time.
By doing so, it’ll have a direct impact on the strength of your credit score.
Make Payments on Time
If you are a student who had to take out a loan to get through college, you are not alone. Due to the cost of American education, many young adults are forced to apply for government assistance to afford to obtain their degree.
Although loan services do not require any payment while you are still pursuing your education, you’ll typically begin receiving monthly bills between six months and a year of graduating. Making steady payments to your student loan is essential for not only building a credit score but improving a poor credit score.
Try to pay more than the minimum balance on your bill each month. This will help you avoid racking up an astronomical amount of interest and paying back double what you originally borrowed from the loan institution.
Another tip for those looking to build their credit is to make utility bill payments on time. You probably see a trend here, but it’s important with all bills to ensure you pay them on time. Whether it’s your car, student loan, rent, or medical bills, anything that you neglect to pay or underpay will hurt your credit score.
Also, considering you are trying to build up your credit from scratch, you want to condition yourself to form good habits.
Don’t Stress, Learn as You Go
If all of this makes you a tad nervous, don’t be. You may feel like you are setting yourself up for failure, but that’s not the case. You do not need to worry about getting credit cards and putting yourself in debt. By making a plan and budgeting accordingly, you’ll ensure that your financial picture remains in a healthy state. If you get a credit card, recognize that you are going to use it only with money that you already have to pay for things.
What you don’t want to do is use your credit card responsibly on outrageously expensive items that you know you will not be able to pay off quickly. This will set you up on a bad path where you find yourself opening more credit cards just to be able to compensate for your everyday necessities. Then you will get to the point where your credit is so bad, that you won’t be able to apply for loans or mortgages.